UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D. C. 20549

                                    FORM 10-K

(Mark One)

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                   For the fiscal year ended December 31, 2001

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

                        For the transition period from to

                         Commission file number 0-19140

                            CNL INCOME FUND VII, LTD.
             (Exact name of registrant as specified in its charter)

           Florida                                   59-2963871
 (State or other jurisdiction of            (I.R.S. Employer Identification No.)
 incorporation or organization)

                             450 South Orange Avenue
                             Orlando, Florida 32801
          (Address of principal executive offices, including zip code)

       Registrant's telephone number, including area code: (407) 540-2000

          Securities registered pursuant to Section 12 (b) of the Act:

    Title of each class:                  Name of exchange on which registered:
           None                                      Not Applicable

           Securities registered pursuant to Section 12(g) of the Act:

               Units of limited partnership interest ($1 per Unit)
                                (Title of class)

         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934 during the preceding 12 months (or such shorter  period that the registrant
was  required  to file such  reports),  and (2) has been  subject to such filing
requirements for the past 90 days: Yes X No

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendment to this Form 10-K. [x]

         Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 30,000,000 units of limited
partnership  interest  (the  "Units") on Form S-11 under the  Securities  Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $1 per Unit.

                      DOCUMENTS INCORPORATED BY REFERENCE:
                                      None


<PAGE>
                                     PART I


Item 1.  Business

         CNL Income Fund VII, Ltd. (the "Registrant" or the  "Partnership") is a
limited  partnership  which was  organized  pursuant to the laws of the State of
Florida on August 18, 1989. The general  partners of the  Partnership are Robert
A.  Bourne,  James  M.  Seneff,  Jr.  and  CNL  Realty  Corporation,  a  Florida
corporation  (the  "General  Partners").  Beginning  on January  30,  1990,  the
Partnership offered for sale up to $30,000,000 of limited partnership  interests
(the "Units")  (30,000,000 Units each at $1 per Unit) pursuant to a registration
statement  on Form S-11  under  the  Securities  Act of 1933,  as  amended.  The
offering  terminated  on August 1, 1990,  as of which date the maximum  offering
proceeds of  $30,000,000  had been received from  investors who were admitted to
the Partnership as limited partners (the "Limited Partners").

         The  Partnership  was organized to acquire both newly  constructed  and
existing  restaurant  properties,  as well as properties upon which  restaurants
were to be  constructed  (the  "Properties"),  which  are  leased  primarily  to
operators of national and regional fast-food and family-style  restaurant chains
(the "Restaurant Chains").  Net proceeds to the Partnership from its offering of
Units,  after  deduction  of  organizational  and  offering  expenses,   totaled
$26,550,000, and were used to acquire 42 Properties, including interests in nine
Properties  owned by joint  ventures in which the  Partnership is a co-venturer,
and to establish a working  capital  reserve for  Partnership  purposes.  During
1992,  the  Partnership  sold its Property in Kearns,  Utah and  reinvested  the
majority of the net sales proceeds in a Property in Clinton,  Tennessee.  During
1994, the  Partnership  sold its Property in St. Paul,  Minnesota and reinvested
the majority of the net sales proceeds in a Checkers Property in Winter Springs,
Florida,  consisting  of only  land,  and a Jack in the Box  Property  in  Yuma,
Arizona,  which is owned as  tenants-in-common  with an affiliate of the General
Partners.  The lessee of the Property  consisting of only land owns the building
currently on the land.  During 1995,  the  Partnership  sold its  Properties  in
Florence, South Carolina and Jacksonville, Florida and accepted promissory notes
in the principal sum of $1,160,000 and $240,000,  respectively. In addition, the
building  located on the  Partnership's  Property in Daytona Beach,  Florida was
demolished in accordance with a condemnation  agreement during 1995.  During the
year ended December 31, 1996, the  Partnership  sold its Properties in Hartland,
Michigan and Colorado  Springs,  Colorado and  reinvested the net sales proceeds
received from the sale of the Colorado  Springs,  Colorado  Property in a Boston
Market Property in Marietta,  Georgia.  During the year ended December 31, 1997,
the  Partnership  used the net sales  proceeds  from the sale of the Property in
Hartland, Michigan to invest in CNL Mansfield Joint Venture with an affiliate of
the General  Partners in exchange  for a 79% interest in the joint  venture.  In
addition, during 1997, the Partnership sold its Properties in Columbus,  Indiana
and Dunnellon,  Florida and sold the Property in Yuma, Arizona,  which was owned
as tenants-in-common  with an affiliate of the General Partners,  and reinvested
the net sales  proceeds  in a  Property  in  Smithfield,  North  Carolina  and a
Property in Miami, Florida,  each as  tenants-in-common,  with affiliates of the
General Partners.  During the year ended December 31, 1999, the Partnership sold
its Property in Maryville,  Tennessee and used the net sales  proceeds to invest
in a Property in Montgomery,  Alabama as  tenants-in-common,  with affiliates of
the General  Partners.  In addition,  during 1999,  the  Partnership  received a
prepaid  principal  payment from the borrower  relating to one of the promissory
notes the Partnership had previously accepted. The Partnership used the proceeds
to invest in Duluth Joint  Venture with  affiliates  of the General  Partners to
construct and hold one  restaurant  property.  In addition,  during 1999,  Halls
Joint  Venture,  in  which  the  Partnership  owned a 51.1%  interest,  sold its
Property in Halls, Tennessee.

         During the year ended  December  31,  2000,  the  Partnership  sold its
Property  in  Pueblo,   Colorado  and  reinvested  the  net  sales  proceeds  as
tenants-in-common,  with affiliates of the General Partners to purchase and hold
one restaurant Property in Colorado Springs, Colorado. In addition, during 2000,
the  Partnership  liquidated  Halls Joint Venture and used the pro rata share of
the liquidation  proceeds it received to enter into a joint venture arrangement,
TGIF Pittsburgh Joint Venture, to purchase and hold one restaurant Property.  In
addition,   during  2000,  the   Partnership   sold  its  three   Properties  in
Jacksonville,  Florida;  one  Property in Lake City,  Florida;  one  Property in
Brunswick,  Georgia and one  Property in  Friendswood,  Illinois.  In  addition,
during  2000,  the  Partnership  purchased  additional  interest in Duluth Joint
Venture from CNL Income Fund V, Ltd. and CNL Income Fund XV, Ltd., affiliates of
the General  Partners.  During the year ended December 31, 2001, the Partnership
purchased  an  additional  interest in TGIF  Pittsburgh  Joint  Venture from CNL
Income Fund XVIII,  Ltd.,  an  affiliate of the General  Partners.  In addition,
during 2001, the Partnership  reinvested the net sales proceeds from the sale of
three of its  Properties  (two in  Jacksonville,  Florida  and one in Lake City,
Florida) in a Property in Baton  Rouge,  Louisiana  that was  acquired  from CNL
Funding 2001-A,  LP, an affiliate of the General Partners.  In addition,  during
2001,  the  Partnership  used the  proceeds  from the  sale of the  Property  in
Friendswood, Texas and the proceeds from the promissory note related to the 1995
sale of the  Property in  Florence,  South  Carolina to invest in CNL VII & XVII
Lincoln Joint Venture with an affiliate of the General  Partners to purchase and
hold one restaurant Property and used the remaining proceeds from the promissory
note to invest in CNL VII, XV Columbus  Joint  Venture  with an affiliate of the
General  Partners to construct and hold one  restaurant  Property.  In addition,
during 2001, the Partnership sold its Properties in Daytona Beach,  Gainesville,
and Saddlebrook, Florida. In connection with the sale of the Property in Daytona
Beach,  Florida, the Partnership accepted a promissory note in the principal sum
of $103,581.

         As a result of the above  transactions,  as of December 31,  2001,  the
Partnership  owned  35  Properties.  The 35  Properties  included  interests  in
thirteen  Properties  owned by joint  ventures  in which  the  Partnership  is a
co-venturer and four Properties owned with affiliates as tenants-in-common.  The
Properties  are,  in  general,  leased on a  triple-net  basis with the  lessees
responsible  for all repairs and  maintenance,  property  taxes,  insurance  and
utilities.

         The  Partnership  will hold its Properties  until the General  Partners
determine that the sale or other  disposition of the Properties is  advantageous
in view of the Partnership's investment objectives.  In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation,  net cash flow and  federal  income  tax  considerations.  Certain
lessees also have been granted options to purchase Properties,  generally at the
Property's  then fair market  value after a specified  portion of the lease term
has elapsed.  The  Partnership has no obligation to sell all or any portion of a
Property  at any  particular  time,  except as may be  required  under  property
purchase options granted to certain lessees.

         On March 11, 1999, the  Partnership  entered into an Agreement and Plan
of Merger with CNL  American  Properties  Fund,  ("APF"),  pursuant to which the
Partnership would be merged with an into a subsidiary of APF (the "Merger"). APF
is a real estate  investment  trust whose  primary  business is the ownership of
restaurant  Properties leased on a long-term  "triple-net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration  for the Merger. On
March 1, 2000,  the General  Partners and CNL  American  Properties  Fund,  Inc.
("APF")  announced that they had mutually  agreed to terminate the Agreement and
Plan of Merger  entered  into in March 1999.  The  agreement  to  terminate  the
Agreement and Plan of Merger was based, in large part, on the General  Partners'
concern that,  in light of market  conditions  relating to publicly  traded real
estate  investment  trusts,  the value of the transaction  had diminished.  As a
result of such  diminishment,  the General  Partners'  ability to  unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become  questionable.  The  General  Partners  are  continuing  to  evaluate
strategic  alternatives for the Partnership,  including  alternatives to provide
liquidity to the Limited Partners.

Leases

         Although there are variations in the specific terms of the leases,  the
following  is  a  summarized   description  of  the  general  structure  of  the
Partnership's  leases. The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms  ranging  from five to 20 years (the average  being 16 years),  and expire
between 2003 and 2022. Generally, the leases are on a triple-net basis, with the
lessee  responsible for all repairs and maintenance,  property taxes,  insurance
and  utilities.  The leases of the  Properties  provide for minimum  base annual
rental payments  (payable in monthly  installments)  ranging from  approximately
$30,000 to $259,900.  The majority of the leases  provide for  percentage  rent,
based on sales in excess of a specified amount. In addition,  some of the leases
provide that,  commencing in specified lease years  (generally  ranging from the
sixth to the eleventh lease year), the annual base rent required under the terms
of the lease will increase.

         Generally,  the  leases  of the  Properties  provide  for  two to  five
five-year  renewal  options  subject  to the same  terms and  conditions  as the
initial lease.  Lessees of 24 of the  Partnership's 35 Properties also have been
granted options to purchase  Properties at the Property's then fair market value
after a specified portion of the lease term has elapsed.  Fair market value will
be determined  through an appraisal by an independent  appraisal firm. Under the
terms of certain leases,  the option purchase price may equal the  Partnership's
original cost to purchase the Property  (including  acquisition  costs),  plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.

         The leases also  generally  provide that, in the event the  Partnership
wishes to sell the Property  subject to that lease,  the Partnership  first must
offer the  lessee  the right to  purchase  that  Property  on the same terms and
conditions,  and for the same  price,  as any offer  which the  Partnership  has
received for the sale of the Property.

         In January 2001,  the  Partnership  reinvested  the net sales  proceeds
received from the sale of three of its Properties (two in Jacksonville,  Florida
and one in Lake City, Florida) in a Property in Baton Rouge, Louisiana. In April
2001, the Partnership  invested in a joint venture  arrangement,  CNL VII & XVII
Lincoln  Joint  Venture  with CNL Income  Fund  XVII,  Ltd.,  a Florida  limited
partnership and an affiliate of the General  Partners,  to purchase and hold one
restaurant Property. In August 2001, the Partnership invested in a joint venture
arrangement,  CNL VII, XV Columbus Joint Venture with CNL Income Fund XV, Ltd. a
Florida  limited  partnership  and an  affiliate  of the  General  Partners,  to
construct and hold one restaurant Property. The lease terms for these Properties
are substantially the same as the Partnership's other leases.

Major Tenants

         During 2001,  three  lessees (or groups of  affiliated  tenants) of the
Partnership and its consolidated joint venture,  (i) Golden Corral  Corporation,
(ii) Jack in the Box Inc. and Jack in the Box Eastern Division,  L.P. (which are
affiliated  entities under common control of Jack in the Box Inc.)  (hereinafter
referred to as "Jack in the Box Inc."),  and (iii)  Waving  Leaves,  Inc.,  each
contributed more than ten percent of the Partnership's total rental,  earned and
mortgage  interest  income  (including  rental  income  from  the  Partnership's
consolidated  joint  venture  and the  Partnership's  share of rental and earned
income from  Properties  owned by  unconsolidated  joint ventures and Properties
owned with  affiliates  of the  General  Partners as  tenants-in-common).  As of
December  31,  2001,  Golden  Corral  Corporation  was the lessee  under  leases
relating to six  restaurants,  Jack in the Box Inc.  was the lessee under leases
relating to four  restaurants,  and Waving  Leaves,  Inc.  was the lessee  under
leases  relating  to four  restaurants.  It is  anticipated  that,  based on the
minimum rental  payments  required by the leases,  these three lessees each will
continue to contribute more than ten percent of the Partnership's  total rental,
earned and  mortgage  interest  income in 2002.  In  addition,  four  Restaurant
Chains, Golden Corral Family Steakhouse Restaurants ("Golden Corral"), Hardee's,
Jack in the Box, and Burger King,  each  accounted  for more than ten percent of
the  Partnership's  total rental,  earned and mortgage  interest  income in 2001
(including rental income from the Partnership's  consolidated  joint venture and
the  Partnership's  share of rental and earned income from  Properties  owned by
unconsolidated  joint  ventures  and  Properties  owned with  affiliates  of the
General  Partners as  tenants-in-common).  In 2002, it is anticipated that these
four  Restaurant  Chains each will continue to account for more than ten percent
of the Partnership's total rental,  earned and mortgage interest income to which
the Partnership is entitled under the terms of the leases.  Any failure of these
lessees or Restaurant Chains could materially affect the Partnership's income if
the Partnership is not able to re-lease the Properties in a timely manner. As of
December 31, 2001, Golden Corral Corporation leased Properties with an aggregate
carrying value in excess of 20% of the total assets of the Partnership.

Joint Venture and Tenancy in Common Arrangements

         At December 31, 2001, the Partnership has a joint venture  arrangement,
San  Antonio  #849  Joint  Venture,  with an  unaffiliated  entity,  to hold one
Property.   In  addition,   the  Partnership  has  six  separate  joint  venture
arrangements with affiliates of the General Partners: CNL Restaurant Investments
II with CNL Income Fund VIII, Ltd. and CNL Income Fund IX, Ltd.; Des Moines Real
Estate  Joint  Venture  with CNL Income Fund XI,  Ltd.  and CNL Income Fund XII,
Ltd.;  CNL Mansfield  Joint Venture with CNL Income Fund XVII,  Ltd.; and Duluth
Joint Venture with CNL Income Fund XIV, Ltd.

         In June 2000, the Partnership entered into a joint venture arrangement,
TGIF  Pittsburgh  Joint Venture,  with CNL Income Fund XV, Ltd., CNL Income Fund
XVI,  Ltd.,  and CNL Income Fund XVIII,  Ltd. to purchase and hold one Property.
Each of the CNL Income Funds is an  affiliate  of the General  Partners and is a
limited  partnership  organized pursuant to the laws of the state of Florida. In
January 2001,  the  Partnership  acquired an additional  19.72%  interest in the
joint venture from CNL Income Fund XVIII, Ltd.

         In  April  2001,   the   Partnership   entered  into  a  joint  venture
arrangement,  CNL VII & XVII Lincoln Joint  Venture,  with CNL Income Fund XVII,
Ltd.  and  in  August  2001,  the  Partnership  entered  into  a  joint  venture
arrangement,  CNL VII, XV Columbus Joint Venture,  with CNL Income Fund XV, Ltd.
Each of the CNL Income Funds is an  affiliate  of the General  Partners and is a
limited partnership  organized pursuant to the laws of the state of Florida. CNL
Restaurants  Investments  II was formed to purchase and hold six  Properties and
each of the other joint ventures was formed to purchase and hold one Property.

         The joint  venture  arrangements  provide for the  Partnership  and its
joint venture  partners to share in all costs and benefits  associated  with the
joint venture in accordance with their  respective  percentage  interests in the
joint venture.  The  Partnership has an 83.3% interest in San Antonio #849 Joint
Venture,  an 18% interest in CNL Restaurant  Investments II, a 4.79% interest in
Des Moines Real Estate  Joint  Venture,  a 79% interest in CNL  Mansfield  Joint
Venture,  a 56%  interest in Duluth  Joint  Venture,  a 36.88%  interest in TGIF
Pittsburgh  Joint  Venture,  a 14%  interest  in CNL  VII & XVII  Lincoln  Joint
Venture,  and a 68.75%  interest  in CNL VII,  XV Columbus  Joint  Venture.  The
Partnership and its joint venture partners are also jointly and severally liable
for all debts, obligations and other liabilities of the joint venture.

         San Antonio #849 Joint  Venture,  Des Moines Real Estate Joint Venture,
CNL Mansfield  Joint  Venture,  Duluth Joint Venture and TGIF  Pittsburgh  Joint
Venture each have an initial term of 20 years and,  after the  expiration of the
initial term,  continue in existence from year to year unless  terminated at the
option  of  any  joint  venturer  or by  an  event  of  dissolution.  Events  of
dissolution  include the  bankruptcy,  insolvency  or  termination  of any joint
venturer,  sale of the Property owned by the joint venture and mutual  agreement
of the Partnership and each joint venture partner to dissolve the joint venture.
CNL VII & XVII Lincoln Joint Venture and CNL VII, XV Columbus Joint Venture each
have an initial term of 30 years. CNL Restaurant  Investments II's joint venture
agreement  does not provide a fixed  term,  but  continues  in  existence  until
terminated by any of the joint venturers.

         The  Partnership  has management  control of the San Antonio #849 Joint
Venture and shares  management  control  equally with  affiliates of the General
Partners  for CNL  Restaurant  Investments  II, Des  Moines  Real  Estate  Joint
Venture,  CNL Mansfield  Joint Venture,  Duluth Joint Venture,  TGIF  Pittsburgh
Joint  Venture,  CNL VII & XVII Lincoln  Joint  Venture and CNL VII, XV Columbus
Joint Venture.  The joint venture agreements restrict each venturer's ability to
sell,  transfer or assign its joint venture  interest  without first offering it
for sale to its joint venture partner,  either upon such terms and conditions as
to which the venturers may agree or, in the event the venturers cannot agree, on
the same terms and  conditions  as any offer from a third party to purchase such
joint venture interest.

         Net cash flow from  operations of San Antonio #849 Joint  Venture,  CNL
Restaurant  Investments II, Des Moines Real Estate Joint Venture,  CNL Mansfield
Joint Venture,  Duluth Joint Venture, and TGIF Pittsburgh Joint Venture, CNL VII
& XVII  Lincoln  Joint  Venture  and CNL  VII,  XV  Columbus  Joint  Venture  is
distributed 83.3%, 18%, 4.79%, 79%, 56%, 36.88%,  14% and 68.75%,  respectively,
to the  Partnership  and the balance is  distributed  to each of the other joint
venture partners in accordance with their respective percentage interests in the
joint venture.  Any liquidation  proceeds,  after paying joint venture debts and
liabilities and funding reserves for contingent liabilities, will be distributed
first to the joint venture  partners with positive  capital account  balances in
proportion to such balances  until such balances  equal zero,  and thereafter in
proportion  to each joint  venture  partner's  percentage  interest in the joint
venture.

         In addition to the above joint venture  arrangements,  the  Partnership
has an agreement to hold a Property in Miami, Florida, as tenants-in-common with
CNL Income Fund III,  Ltd.,  CNL Income  Fund X, Ltd.  and CNL Income Fund XIII,
Ltd.,  affiliates of the General Partners.  In addition,  the Partnership has an
agreement to hold a Golden Corral  Property in Smithfield,  North  Carolina,  as
tenants-in-common  with CNL Income Fund II,  Ltd.,  an  affiliate of the General
Partners;   an  agreement  to  hold  a  Property  in  Montgomery,   Alabama,  as
tenants-in-common,  with CNL Income Fund IX,  Ltd.,  an affiliate of the General
Partners; and an agreement to hold a Property in Colorado Springs,  Colorado, as
tenants-in-common  with CNL Income Fund XII,  Ltd.,  an affiliate of the General
Partners. The agreements provide for the Partnership and the affiliates to share
in the profits  and losses of the  Property in  proportion  to each  co-tenant's
percentage  interest.  The  Partnership  owns a 35.64%,  a 53%,  a 71% and a 43%
interest, respectively, in these Properties.

         Each of the affiliates is a limited  partnership  organized pursuant to
the laws of the state of Florida. The tenancy in common agreement restricts each
co-tenant's ability to sell, transfer,  or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining co-tenant.

         The use of joint venture and tenancy in common  arrangements allows the
Partnership  to fully invest its available  funds at times at which it would not
have  sufficient  funds to purchase an additional  property,  or at times when a
suitable  opportunity to purchase an additional  property is not available.  The
use of joint  venture  and  tenancy in common  arrangements  also  provides  the
Partnership  with  increased  diversification  of its portfolio  among a greater
number of properties. In addition,  tenancy in common arrangements may allow the
Partnership  to defer the gain for federal  income tax purposes upon the sale of
the property if the proceeds  are  reinvested  in an  additional  property.  The
affiliates are limited partnerships  organized pursuant to the laws of the state
of Florida.

Certain Management Services

         CNL APF Partners,  LP, an affiliate of the General  Partners,  provides
certain  services  relating to management of the  Partnership and its Properties
pursuant to a management  agreement with the Partnership.  Under this agreement,
CNL APF  Partners,  LP (the  "Advisor") is  responsible  for  collecting  rental
payments,  inspecting  the  Properties  and  the  tenants'  books  and  records,
assisting the  Partnership  in  responding  to tenant  inquiries and notices and
providing  information to the Partnership about the status of the leases and the
Properties.  The Advisor also assists the General  Partners in  negotiating  the
leases.  For these  services,  the  Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross rental  revenues  from  Properties
wholly owned by the Partnership plus the Partnership's  allocable share of gross
revenues of joint  ventures in which the  Partnership  is a co-venturer  and the
Property  held as  tenants-in-common  with an  affiliate,  but not in  excess of
competitive fees for comparable services.  Under the management  agreement,  the
management  fee is  subordinated  to  receipt  by  the  Limited  Partners  of an
aggregate,  ten  percent,  cumulative,  noncompounded  annual  return  on  their
adjusted  capital  contributions  (the "10%  Preferred  Return"),  calculated in
accordance   with  the   Partnership's   limited   partnership   agreement  (the
"Partnership  Agreement").  In any year in which the Limited  Partners  have not
received the 10% Preferred Return, no property management fee will be paid.

         During 2000,  CNL Fund Advisors,  Inc.  assigned its rights in, and its
obligations  under,  the management  agreement  with the  Partnership to CNL APF
Partners,  LP.  All of the terms and  conditions  of the  management  agreement,
including the payment of fees, as described above, remain unchanged.

         The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.

Competition

         The fast-food and family-style  restaurant business is characterized by
intense  competition.  The restaurants on the Partnership's  Properties  compete
with  independently  owned  restaurants,  restaurants which are part of local or
regional chains, and restaurants in other well-known national chains,  including
those offering different types of food and service.

Employees

         The  Partnership   has  no  employees.   The  officers  of  CNL  Realty
Corporation  and the  officers and  employees of APF, the parent  company of the
Advisor perform certain services for the Partnership.  In addition,  the General
Partners have  available to them the resources and expertise of the officers and
employees of CNL Financial Group,  Inc. a diversified  real estate company,  and
its affiliates, who may also perform certain services for the Partnership.


Item 2.  Properties

         As of December 31, 2001, the Partnership owned 35 Properties. Of the 35
Properties,  18 are owned by the Partnership in fee simple, 13 are owned through
joint  venture  arrangements  and four  are  owned  through  tenancy  in  common
arrangements.  See Item 1.  Business  - Joint  Venture  and  Tenancy  in  Common
Arrangements.  The Partnership is not permitted to encumber its Properties under
the terms of its  partnership  agreement.  Reference  is made to the Schedule of
Real Estate and  Accumulated  Depreciation  for a listing of the  Properties and
their  respective  costs  including  acquisition  fees and  certain  acquisition
expenses.

Description of Properties

         Land. The Partnership's  Property sites range from approximately 20,600
to 110,200  square  feet  depending  upon  building  size and local  demographic
factors.  Sites  purchased  by  the  Partnership  are  in  locations  zoned  for
commercial use which have been reviewed for traffic patterns and volume.

         The following table lists the Properties owned by the Partnership as of
December 31, 2001 by state. More detailed information  regarding the location of
the  Properties  is  contained  in the  Schedule of Real Estate and  Accumulated
Depreciation.

                State                                   Number of Properties

                Alabama                                               1
                Arizona                                               1
                Colorado                                              1
                Florida                                               3
                Georgia                                               3
                Indiana                                               1
                Louisiana                                             2
                Michigan                                              2
                Minnesota                                             1
                Nebraska                                              1
                North Carolina                                        1
                Ohio                                                  7
                Pennsylvania                                          1
                Tennessee                                             2
                Texas                                                 7
                Washington                                            1
                                                                 -------
                TOTAL PROPERTIES                                     35
                                                                 =======

         Buildings.  Generally,  each of the Properties owned by the Partnership
includes  a  building  that is one of a  Restaurant  Chain's  approved  designs.
However,  the building located on the Checkers  Property is owned by the tenant,
while the land parcel is owned by the Partnership.  The buildings  generally are
rectangular and are  constructed  from various  combinations  of stucco,  steel,
wood, brick and tile. The sizes of the buildings owned by the Partnership  range
from  approximately  700 to 10,600 square feet.  All buildings on Properties are
freestanding  and surrounded by paved parking areas.  Buildings are suitable for
conversion to various uses, although  modifications may be required prior to use
for other than restaurant  operations.  As of December 31, 2001, the Partnership
had no plans for renovation of the Properties.  Depreciation expense is computed
for buildings and improvements using the straight-line  method using depreciable
lives of 40 years for federal income tax purposes.

         As of December 31, 2001, the aggregate cost of the Properties  owned by
the   Partnership   (including   its   consolidated   joint   venture)  and  the
unconsolidated   joint  ventures   (including   the  Properties   owned  through
tenants-in-common arrangements), for federal income tax purposes was $16,104,595
and $22,942,477, respectively.



<PAGE>


         The following table lists the Properties owned by the Partnership as of
December 31, 2001 by Restaurant Chain.

                Restaurant Chain                         Number of Properties

                Bennigan's                                          1
                Boston Market                                       1
                Burger King                                         8
                Checkers                                            1
                Chevy's Fresh Mex                                   1
                Golden Corral                                       6
                Hardee's                                            6
                IHOP                                                1
                Jack in the Box                                     4
                KFC                                                 1
                Rally's                                             1
                Roadhouse Grill                                     1
                Sonny's Bar-B-Q                                     1
                Taco Bell                                           1
                TGI Friday's                                        1
                                                               -------

                TOTAL PROPERTIES                                   35
                                                               =======

         The General Partners  consider the Properties to be well maintained and
sufficient for the Partnership's operations.

         The General Partners believe that the Properties are adequately covered
by  insurance.  In  addition,  the General  Partners  have  obtained  contingent
liability and property coverage for the Partnership.  This insurance is intended
to reduce the Partnership's  exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.

         Leases.  The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term  "triple  net"  basis,  meaning  that the  tenant is  responsible  for
repairs,  maintenance,  property taxes,  utilities and insurance.  Generally,  a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably  necessary to refurbish  buildings,  premises,
signs  and  equipment  so  as  to  comply  with  the  lessee's  obligations,  if
applicable,  under the  franchise  agreement  to reflect the current  commercial
image of its Restaurant  Chain.  These capital  expenditures  are required to be
paid by the lessee during the term of the lease.  The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.

         At December 31, 2001, 2000, 1999, 1998, and 1997, all of the Properties
were occupied.  The following is a schedule of the average rent per Property for
each of the years ended December 31:
<TABLE>
<CAPTION>

                                   2001              2000              1999               1998               1997
                               -------------     -------------    ---------------     --------------     --------------

 <c>
Rental Revenues (1)             $ 2,686,849       $ 2,801,210        $ 2,902,968         $2,879,831         $2,751,418
Properties                               35                35                 40                 40                 40
Average Rent per
     Property                     $  76,767         $  80,035          $  72,574          $  71,996          $  68,785
</TABLE>

(1)      Rental income  includes the  Partnership's  share of rental income from
         the  Properties  owned  through  joint  venture  arrangements  and  the
         Properties  owned  through  tenancy  in  common  arrangements.   Rental
         revenues have been adjusted,  as applicable,  for any amounts for which
         the Partnership has established an allowance for doubtful accounts.

         The following is a schedule of lease expirations for leases in place as
of December 31, 2001 for the next ten years and thereafter.
<TABLE>
<CAPTION>

                                                                                     Percentage of
             Expiration Year          Number              Annual Rental              Gross Annual
                                     of Leases               Revenues                Rental Income
             -----------------    ----------------       -----------------     --------------------------

 <c>
              2002                        --                 $     --                      --
              2003                         1                   30,000                   1.07%
              2004                         1                  137,061                   4.90%
              2005                         9                  561,873                  20.10%
              2006                         1                   61,192                   2.18%
              2007                        --                       --                      --
              2008                         1                  101,133                   3.61%
              2009                        --                       --                      --
              2010                         9                  709,529                  25.38%
              2011                        --                       --                      --
              Thereafter                  13                1,195,666                  42.76%
                                   ----------       ------------------           -------------
              Total                       35             $  2,796,454                 100.00%
                                   ==========       ==================           =============
</TABLE>


         Leases  with Major  Tenants.  The terms of each of the leases  with the
Partnership's  major  tenants as of December  31,  2001 (see Item 1.  Business -
Major  Tenants),  are  substantially  the  same as  those  described  in Item 1.
Business - Leases.

         Golden Corral  Corporation  leases six Golden Corral  restaurants.  The
initial term of each lease is 15 years (expiring  between 2004 and 2015) and the
average  minimum  base  annual  rent is  approximately  $154,900  (ranging  from
approximately $137,100 to $185,500).

         Jack in the Box  Inc.  leases  four  Jack in the Box  restaurants.  The
initial  term of each lease is 18 to 20 years  (expiring  between 2010 and 2018)
and the average minimum base annual rent is approximately $109,700 (ranging from
approximately $80,000 to $140,900).

         Waving Leaves, Inc. leases four Hardee's restaurants.  The initial term
of each lease is 13 years (expiring in 2010) and the average minimum base annual
rent is approximately $70,700 (ranging from approximately $60,600 to $78,900).


Item 3. Legal Proceedings

         Neither the  Partnership,  nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties,  is a party to, or
subject to any material pending legal proceedings.


Item 4. Submission of Matters to a Vote of Security Holders

         Not applicable.


<PAGE>


                                     PART II


Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

         (a) As of March 15,  2002,  there were  3,143  holders of record of the
Units.  There  is no  public  trading  market  for  the  Units,  and  it is  not
anticipated  that a public  market  for the Units  will  develop.  During  2001,
Limited  Partners  who wished to sell their Units may have offered the Units for
sale pursuant to the Partnership's  distribution reinvestment plan (the "Plan"),
and  Limited  Partners  who wished to have their  distributions  used to acquire
additional  Units (to the extent Units were  available for  purchase),  may have
done so pursuant to such Plan.  The General  Partners have the right to prohibit
transfers of Units. From inception through December 31, 2001, the price paid for
any Unit transferred  pursuant to the Plan was $.95 per Unit. The price paid for
any Unit transferred  other than pursuant to the Plan was subject to negotiation
by the purchaser  and the selling  Limited  Partner.  The  Partnership  will not
redeem or repurchase Units.

         The following table reflects,  for each calendar quarter, the high, low
and average  sales prices for transfers of Units during 2001 and 2000 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>

                                                2001 (1)                                   2000 (1)
                                -----------------------------------------    --------------------------------------
                                    High          Low          Average         High          Low         Average
                                ----------    ---------     -----------    ----------    ---------    -----------

 <c>
      First Quarter                     (2)          (2)             (2)        $  .77       $  .77        $  .77
      Second Quarter                    (2)          (2)             (2)           (2)          (2)           (2)
      Third Quarter                    1.00          .54             .73           .88          .68           .71
      Fourth Quarter                    .88          .60             .82           .68          .65           .68

</TABLE>

(1)      A total of  161,877  and  138,570  Units  were  transferred  other than
         pursuant  to the Plan for the years ended  December  31, 2001 and 2000,
         respectively.

(2)      No transfer of Units took place during the quarter  other than pursuant
         to the plan.

         The  capital  contribution  per Unit was $1.  All  cash  available  for
distribution  will be distributed to the partners  pursuant to the provisions of
the Partnership Agreement.

         For each of the years ended December 31, 2001 and 2000, the Partnership
declared cash distributions of $2,700,000 to the Limited Partners. Distributions
of $675,000  were  declared at the close of each of the  Partnership's  calendar
quarters  during 2001 and 2000 to the Limited  Partners.  These amounts  include
monthly  distributions  made in arrears  for the  Limited  Partners  electing to
receive  distributions on this basis. No amounts distributed to partners for the
years ended  December 31, 2001 and 2000, are required to be or have been treated
by the  Partnership  as a return of capital  for  purposes  of  calculating  the
Limited   Partners'   return  on  their  adjusted  capital   contributions.   No
distributions have been made to the General Partners to date.

         The  Partnership  intends to  continue  to make  distributions  of cash
available  for  distribution  to the  Limited  Partners  on a  quarterly  basis,
although some Limited  Partners,  in  accordance  with their  election,  receive
monthly distributions, for an annual fee.

(b)      Not applicable.



<PAGE>


Item 6.  Selected Financial Data
<TABLE>
<CAPTION>

                                             2001            2000            1999           1998           1997
                                         --------------  -------------- --------------- -------------- --------------

 <c>
Year ended December 31:
     Revenues (1)                          $ 2,742,568     $ 2,842,101     $ 2,992,933    $ 2,948,217   $ 2,919,734
     Net income (2)                          2,215,570       3,221,515       2,545,690      2,466,018     2,606,008
     Cash distributions declared             2,700,000       2,700,000       2,700,000      2,700,000     2,700,000
     Net income per Unit (2)                     0.074           0.107           0.084          0.081         0.086
     Cash distributions declared
         per Unit                                0.090           0.090           0.090          0.090         0.090

At December 31:
     Total assets                          $25,073,220    $ 25,607,914    $ 25,146,133    $25,218,258   $25,479,762
     Partners' capital                      24,196,571      24,681,001      24,159,486     24,313,796    24,547,778
</TABLE>

(1)      Revenues  include equity in earnings of  unconsolidated  joint ventures
         and minority interest in income of the consolidated joint venture.

(2)      Net income for the years ended December 31, 2001, 2000, 1999, 1998, and
         1997,  includes  $382,122,  $878,347,  $189,826,  $1,025, and $184,627,
         respectively,  from  gains on sale of  assets.  Net income for the year
         ended December 31, 1997, includes a loss on sale of assets of $19,739.

         The above selected  financial  data should be read in conjunction  with
the financial statements and related notes contained in Item 8 hereof.


Item 7.  Management's Discussion and Analysis of Financial Condition and Results
         of Operations

         The  Partnership was organized on August 18, 1989, to acquire for cash,
either directly or through joint venture  arrangements,  both newly  constructed
and  existing  restaurant  Properties,  as well as land  upon  which  restaurant
Properties  were to be constructed,  which are leased  primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are generally  triple-net leases, with the lessees generally  responsible
for all repairs and maintenance,  property taxes, insurance and utilities. As of
December 31, 2001,  the  Partnership  owned 35  Properties,  either  directly or
indirectly through joint venture or tenancy in common arrangements.

Capital Resources

         The  Partnership  generated cash from  operations  (which includes cash
received from tenants,  distributions from joint ventures and interest received,
less cash paid for expenses) for the years ended  December 31, 2001,  2000,  and
1999. Cash from operations was $2,375,682,  $2,620,009,  and $2,679,493, for the
years ended  December 31, 2001,  2000, and 1999,  respectively.  The decrease in
cash from operations  during 2001 and 2000 as compared to the previous year, was
primarily a result of changes in the  Partnership's  working capital and changes
in income and expenses as described in "Results of Operations," below.

         Other  significant  sources and uses of capital  included the following
during the years ended December 31, 2001, 2000, and 1999.

         The Partnership  had a mortgage note  receivable  relating to a sale in
1995  of  a  Property  in  Florence,  South  Carolina.  In  February  2001,  the
Partnership  received  a  balloon  payment  of  $1,115,301  which  included  the
outstanding  principal balance and $14,419 of accrued interest.  The Partnership
used the  majority  of the net sales  proceeds to acquire a Property in Lincoln,
Nebraska,  and a  Property  in  Columbus,  Georgia,  each of which is held  with
affiliates of the General Partners as tenants-in-common, as described below.

         In  June  1999,  the  Partnership   sold  its  Property  in  Maryville,
Tennessee,  to the tenant in accordance with the purchase option under the lease
agreement  for  $1,068,802  and  received  net  sales  proceeds  of  $1,059,954,
resulting in a gain of $188,691.  In November 1999, the  Partnership  reinvested
these  net  sales   proceeds  in  a  Property   in   Montgomery,   Alabama,   as
tenants-in-common  with an  affiliate of the General  Partners.  The sale of the
Property in Maryville,  Tennessee and the reinvestment of the net sales proceeds
in the  Property  in  Montgomery,  Alabama  qualified  as a  like-kind  exchange
transaction in accordance with Section 1031 of the Internal Revenue Code.

         In  addition,   in  June  1999,  Halls  Joint  Venture,  in  which  the
Partnership  owned  a  51.1%  interest,  sold  its  Property  to the  tenant  in
accordance  with the purchase  option under the lease  agreement  for  $891,915,
resulting in a gain to the joint venture of approximately $239,300. During 2000,
the Partnership and the joint venture partner liquidated Halls Joint Venture and
the Partnership received approximately $460,900, representing its pro rata share
of the liquidation proceeds. In June 2000, the Partnership used a portion of the
net sales  proceeds  from the sale of the Property to enter into a joint venture
arrangement,  TGIF Pittsburgh Joint Venture,  with CNL Income Fund XV, Ltd., CNL
Income Fund XVI, Ltd., and CNL Income Fund XVIII,  Ltd.,  each a Florida limited
partnership and an affiliate of the General  Partners,  to purchase and hold one
restaurant  Property.  As of December 31, 2000, the  Partnership  owned a 17.16%
interest  in the  profits  and  losses of the  joint  venture.  The  Partnership
distributed amounts sufficient to enable the limited partners to pay federal and
state  income  taxes,  if any  (at a level  reasonably  assumed  by the  General
Partners), resulting from the sale. In January 2001, the Partnership acquired an
additional  19.72%  interest in TGIF Pittsburgh  Joint Venture,  from CNL Income
Fund XVIII, Ltd. for an aggregate purchase price of approximately  $500,000.  As
of December 31, 2001, the Partnership owned a 36.88% interest in the profits and
losses of this joint venture.

         In July 1999,  the  Partnership  collected  the  outstanding  principal
balance of $235,564  relating to the promissory note accepted in connection with
the 1995 sale of the Property in  Jacksonville,  Florida.  In December 1999, the
Partnership  reinvested  these  amounts in Duluth Joint  Venture with CNL Income
Fund V, Ltd., CNL Income Fund XIV,  Ltd.,  and CNL Income Fund XV, Ltd.,  each a
Florida  limited  partnership  and an  affiliate  of the  General  Partners,  to
construct  and  hold  one  restaurant  Property.   During  2000  and  1999,  the
Partnership contributed  approximately $969,300 and $119,100,  respectively,  to
purchase land and pay for construction  costs relating to the joint venture.  As
of December 31,  1999,  the  Partnership  had an 11% interest in the profits and
losses of this joint  venture.  In October  2000,  the  Partnership  acquired an
additional  45% interest in Duluth Joint  Venture,  from CNL Income Fund V, Ltd.
and CNL Income Fund XV, Ltd. for an aggregate  purchase  price of  approximately
$610,000.  As of December 31, 2001,  the  Partnership  had a 56% interest in the
profits and losses of this joint venture.

         In June 2000, the Partnership sold its Property in Pueblo, Colorado, to
an  unrelated  third  party and  received  net  sales  proceeds  of  $1,005,000,
resulting in a gain of $97,056.  In August 2000, the Partnership with CNL Income
Fund XII, Ltd., an affiliate of the General  Partners,  used the majority of the
net sales  proceeds to acquire an  interest  in a Property in Colorado  Springs,
Colorado,  from CNL BB  Corp.,  an  affiliate  of the  General  Partners,  for a
purchase price of $2,226,134.  CNL BB Corp. had purchased and  temporarily  held
title to this property in order to facilitate the acquisition of the property by
the Partnership. The purchase price paid represents the costs incurred by CNL BB
Corp.  to  acquire  and  carry  the  Property,   including  closing  costs.  The
Partnership  distributed  amounts  sufficient  to be able to enable the  Limited
Partners to pay federal and state income taxes,  if any, (at a level  reasonably
assumed by the General Partners), resulting from the sale.

         In September  2000,  the  Partnership  sold its Property in  Brunswick,
Georgia,   its  Property  in  Lake  City,  Florida,   and  three  Properties  in
Jacksonville,  Florida,  to unrelated third parties for a total of approximately
$2,404,800  and  received  net  sales  proceeds  of  approximately   $2,392,300,
resulting  in a  total  gain of  $619,495.  In  January  2001,  the  Partnership
reinvested the net sales  proceeds  received from the sales of two Properties in
Jacksonville,  Florida and the  Property in Lake City,  Florida in a Jack in the
Box Property in Baton Rouge,  Louisiana.  The Partnership  acquired the Property
from  CNL  Funding  2001-A,  LP,  an  affiliate  of the  General  Partners.  The
Partnership  intends to reinvest the remaining net sales  proceeds in additional
Properties.  A  portion  of the  transaction  relating  to the  sales  of  these
Properties  and  the  reinvestment  of the  net  sales  proceeds  in  additional
Properties  qualified as a like-kind  exchange  transaction  in accordance  with
Section 1031 of the Internal Revenue Code. The Partnership  distributed  amounts
sufficient  to be able to enable the  Limited  Partners to pay federal and state
income taxes, if any, (at a level reasonably  assumed by the General  Partners),
resulting from the sales.

         In addition,  in December  2000, the  Partnership  sold its Property in
Friendswood,  Texas to its tenant and  received  net sales  proceeds of $725,000
resulting in a gain of $160,649.  In April 2001, the Partnership  used a portion
of these proceeds and a portion of the amount collected from the promissory note
accepted in  connection  with the 1995 sale of the Property in  Florence,  South
Carolina, as described above, to invest in a joint venture arrangement,  CNL VII
& XVII Lincoln Joint Venture, with CNL Income Fund XVII, Ltd., a Florida limited
partnership  and  affiliate  of the General  Partners,  to purchase and hold one
restaurant Property.  The joint venture acquired the Property from CNL BB Corp.,
an affiliate of the General  Partners,  who had purchased and  temporarily  held
title to the Property in order to facilitate the  acquisition of the Property by
the joint venture. As of December 31, 2001, the Partnership owned a 14% interest
in the profits and losses of the joint venture. In addition, in August 2001, the
Partnership  used a portion of the amount  collected  from the  promissory  note
accepted in  connection  with the 1995 sale of the Property in  Florence,  South
Carolina, as described above, to invest in a joint venture arrangement, CNL VII,
XV Columbus  Joint  Venture,  with CNL Income Fund XV, Ltd.,  a Florida  limited
partnership and affiliate of the General Partners, to purchase and construct one
restaurant  Property.  During 2001, the  Partnership  contributed  approximately
$1,025,500 to purchase land and pay for construction costs relating to the joint
venture  and has  agreed  to  contribute  additional  amounts  during  2002  for
additional  construction  costs.  As of December 31, 2001, the Partnership had a
68.75% interest in the profits and losses of this joint venture. The Partnership
distributed  amounts sufficient to be able to enable the Limited Partners to pay
federal and state income taxes,  if any, (at a level  reasonably  assumed by the
General Partners), resulting from the sale.

         In November 2001, the Partnership  sold its Properties in Daytona Beach
and  Gainesville,  Florida to the tenant in accordance  with the purchase option
under the lease  agreement  for a total of $502,063 and received  aggregate  net
sales proceeds of $499,813,  resulting in a gain of $184,894. In connection with
the sales of the  Properties,  the  Partnership  received  $396,232  in cash and
accepted an  uncollateralized  promissory note in the amount of $103,581 related
to the Property in Daytona Beach, Florida. The promissory note bears interest at
a rate of 12.34% per annum and is being collected in 35 monthly  installments of
interest only and thereafter,  the entire principal  balance will become due. In
December 2001, the Partnership  sold its Property in Saddlebrook,  Florida to an
unrelated  third party for $700,000 and received net sales proceeds of $698,050,
resulting  in a gain of $74,232.  The  Partnership  intends to use the net sales
proceeds   received  to  invest  in  additional   Properties.   The  Partnership
distributed  amounts sufficient to be able to enable the Limited Partners to pay
federal and state income taxes,  if any, (at a level  reasonably  assumed by the
General Partners), resulting from the sales.

         None of the Properties owned by the Partnership,  or the joint ventures
or tenancy in common arrangements in which the Partnership owns an interest,  is
or may be  encumbered.  Under its  partnership  agreement,  the  Partnership  is
prohibited from borrowing for any purpose;  provided,  however, that the General
Partners or their affiliates are entitled to reimbursement,  at cost, for actual
expenses  incurred by the General  Partners or their affiliates on behalf of the
Partnership.  Affiliates of the General Partners from time to time incur certain
operating  expenses  on behalf  of the  Partnership  for  which the  Partnership
reimburses the affiliates without interest.

         Currently,  rental income from the  Partnership's  Properties,  any net
sales proceeds from the sale of Properties  pending  reinvestment  in additional
Properties,  and any amounts collected from the promissory notes are invested in
money market accounts or other  short-term,  highly liquid  investments  such as
demand  deposit  accounts  at  commercial  banks,   money  market  accounts  and
certificates  of deposit  with less than a 90-day  maturity  date,  pending  the
Partnership's  use  of  such  funds  to  pay  Partnership  expenses,  invest  in
additional  Properties,  or make distributions to the partners.  At December 31,
2001, the Partnership had $1,747,363 invested in such short-term  investments as
compared to  $1,557,525  at December  31,  2000.  The  increase in cash and cash
equivalents was primarily attributable to the fact that the Partnership received
net sales proceeds from the sale of several  Properties during 2001 and received
the payoff of the promissory  note, as described above. The increase in cash and
cash equivalents was partially offset by the fact that the Partnership  invested
in two joint venture arrangements,  CNL VII & XVII Lincoln Joint Venture and CNL
VII, XV Columbus Joint Venture, as described above. As of December 31, 2001, the
average  interest rate earned on the rental income  deposited in demand  deposit
accounts  at  commercial  banks  was  approximately  3.4%  annually.  The  funds
remaining  at  December  31,  2001,  after  payment of  distributions  and other
liabilities,  will be used to invest in  additional  Properties  and to meet the
Partnership's working capital needs.

Short-Term Liquidity

         The Partnership's  short-term liquidity  requirements consist primarily
of the operating expenses of the Partnership.

         The Partnership's  investment strategy of acquiring Properties for cash
and  leasing  them under  triple-net  leases to  operators  who  generally  meet
specified financial  standards  minimizes the Partnership's  operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.

         Due to low  operating  expenses  and  ongoing  cash flow,  the  General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition,  because all leases of the Partnership's  Properties are
on a  triple-net  basis,  it is not  anticipated  that a  permanent  reserve for
maintenance  and  repairs  will be  established  at this  time.  To the  extent,
however,  that the Partnership  has  insufficient  funds for such purposes,  the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.

         The General  Partners have the right,  but not the obligation,  to make
additional capital  contributions if they deem it appropriate in connection with
the operations of the Partnership.

         The Partnership  generally  distributes cash from operations  remaining
after the payment of the operating  expenses of the  Partnership,  to the extent
that  the  General  Partners   determine  that  such  funds  are  available  for
distribution.  Based  primarily  on current  and  anticipated  future  cash from
operations,  the Partnership  declared  distributions to the Limited Partners of
$2,700,000 for each of the years ended December 31, 2001,  2000, and 1999.  This
represents distributions of $0.090 per Unit for each of the years ended December
31, 2001, 2000, and 1999. No amounts distributed to the Limited Partners for the
years ended  December 31, 2001,  2000,  and 1999 are required to be or have been
treated by the  Partnership  as a return of capital for purposes of  calculating
the  Limited  Partners'  return on their  adjusted  capital  contributions.  The
Partnership  intends to continue to make  distributions  of cash  available  for
distribution to the Limited Partners on a quarterly basis.

         During 2000, the general  partners waived their right to receive future
distributions  from the Partnership,  including both  distributions of operating
cash flow and  distributions  of  liquidation  proceeds,  to the extent that the
cumulative amount of such distributions  would exceed the balance in the general
partners'  capital  account as of December  31, 1999.  Accordingly,  the general
partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2001 and 2000.

         As of December  31, 2001 and 2000,  the  Partnership  owed  $21,837 and
$67,815,  respectively, to affiliates for accounting and administrative services
and other  amounts.  As of March 15, 2002,  the  Partnership  had reimbursed the
affiliates  of all such  amounts.  Other  liabilities,  including  distributions
payable,  of the Partnership  were $713,022 at December 31, 2001, as compared to
$714,730 at December 31, 2000. The General Partners believe that the Partnership
has sufficient cash on hand to meet its current working capital needs.

Long-Term Liquidity

         The  Partnership  has no long-term  debt or other  long-term  liquidity
requirements.

Critical Accounting Policies

         The  Partnership's  leases are  accounted  for under the  provisions of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been  accounted  for using  either the direct  financing  or the  operating
method.  FAS 13 requires  management to estimate the economic life of the leased
property,  the residual  value of the leased  property and the present  value of
minimum lease payments to be received from the tenant.  In addition,  management
assumes  that all  payments  to be  received  under its leases are  collectible.
Changes in  management's  estimates or assumption  regarding  collectibility  of
lease  payments  could  result  in a change in  accounting  for the lease at the
inception of the lease.

         The Partnership  accounts for its  unconsolidated  joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is  appropriate  for entities that are partially
owned by the  Partnership,  but for which  operations of the investee are shared
with other partners.  The  Partnership's  joint venture  agreements  require the
consent of all partners on all key  decisions  affecting  the  operations of the
underlying Property.

         Management  reviews its  Properties and  investments in  unconsolidated
entities  periodically  (no less than once per  year)  for  impairment  whenever
events or changes in  circumstances  indicate  that the  carrying  amount of the
assets may not be recoverable through operations.  Management determines whether
impairment in value has occurred by comparing the estimated future  undiscounted
cash flows, including the residual value of the Property, with the carrying cost
of the  individual  Property.  If an  impairment  is  indicated,  the assets are
adjusted to their fair value.

Results of Operations

         During 1999, the Partnership and its  consolidated  joint venture,  San
Antonio  #849  Joint  Venture,  owned  and  leased 29  wholly  owned  Properties
(including  one  Property  which was sold in June  1999) and  during  2000,  the
Partnership,  and its  consolidated  joint  venture,  owned and leased 27 wholly
owned Properties  (including  seven Properties which were sold in 2000).  During
2001, the  Partnership  and its  consolidated  joint venture owned and leased 22
wholly  owned  Properties  (including  three  Properties  which were sold during
2001). During 1999, the Partnership,  and its consolidated joint venture,  was a
co-venturer  in five,  separate  unconsolidated  joint  ventures which owned and
leased ten Properties  (including one Property which was sold in June 1999), and
owned and leased three Properties with affiliates as  tenants-in-common.  During
2000, the Partnership,  and its consolidated joint venture, was a co-venturer in
six  separate   unconsolidated   joint  ventures  which  owned  and  leased  ten
Properties,   and  owned  and  leased  four   Properties   with   affiliates  as
tenants-in-common.  During 2001, the  Partnership,  and its  consolidated  joint
venture,  was a co-venturer  in seven  separate  joint  ventures which owned and
leased 12 Properties,  and owned and leased four  Properties  with affiliates as
tenants-in-common. As of December 31, 2001, the Partnership and its consolidated
joint venture owned (either directly, as tenants-in-common  with an affiliate or
through joint venture arrangements) 35 Properties which are generally subject to
long-term,  triple-net  leases. The leases of the Properties provide for minimum
base annual  rental  amounts  (payable  in monthly  installments)  ranging  from
approximately  $30,000 to $259,900.  Substantially all of the leases provide for
percentage  rent based on sales in excess of a specified  amount.  In  addition,
some of the  leases  provide  that,  commencing  in the  specified  lease  years
(generally  ranging from the sixth to the eleventh lease year),  the annual base
rent  required  under  the  terms  of  the  lease  will  increase.  For  further
description of the Partnership's  leases and Properties,  see Item 1. Business -
Leases and Item 2. Properties, respectively.

         During  the  years  ended  December  31,  2001,  2000,  and  1999,  the
Partnership and its consolidated  joint venture earned  $1,866,700,  $2,145,945,
and $2,318,042,  respectively, in rental income from operating leases and earned
income from direct  financing  leases.  The decrease in rental and earned income
during 2001 and 2000,  each as compared to the previous  year,  was  primarily a
result of the sale of several Properties,  as described in "Capital  Resources."
The decrease in rental and earned  income  during 2001 as compared to 2000,  was
also  partially due to the fact that the tenant of the Property in  Saddlebrook,
Florida  ceased  restaurant   operations  in  April  2001.  In  July  2001,  the
Partnership and the tenant  terminated the lease relating to the Property and in
December  2001,  the  Partnership  sold the  Property,  as described in "Capital
Resources." As a result,  the General Partners ceased collection efforts of past
due amounts and wrote off such amounts as uncollectible. The Partnership intends
to reinvest these net sales proceeds in an additional Property.

         Rental and earned  income were lower during 2001,  as compared to 2000,
due to the fact  that  during  2000,  the  lease  relating  to the  Property  in
Marietta,  Georgia was amended to provide for rent reductions from November 2000
through  October  2015.  The  decrease,  during 2001 as  compared  to 2000,  was
partially  offset due to the reinvestment of a portion of the net sales proceeds
received  during 2000 in a Property in Baton Rouge,  Louisiana,  as described in
"Capital Resources".  Rental and earned income are expected to remain at reduced
amounts in future years as a result of the Partnership  reinvesting the proceeds
from the sales of several  Properties in joint ventures and in Properties  owned
with  affiliates,  as  tenants-in-common,  as described in "Capital  Resources."
However,  as a result of the  Partnership  reinvesting  in joint ventures and in
Properties  owned with  affiliates  as  tenants-in-common,  net income earned by
unconsolidated  joint ventures  increased in 2001 and 2000,  each as compared to
the previous year, as described below.

         For the years ended December 31, 2001,  2000, and 1999, the Partnership
also earned $75,571,  $91,842, and $76,601,  respectively,  in contingent rental
income.  The decrease in  contingent  rental  income during 2001, as compared to
2000, was primarily  attributable to the sale of several Properties during 2000.
The decrease  during 2001 was partially  offset by an increase in gross sales of
certain  restaurant  Properties,  the  leases of which  require  the  payment of
contingent  rent.  Contingent  rental  income was lower  during  1999 than 2000,
primarily due to fluctuations in gross sales.

         For the years ended December 31, 2001,  2000, and 1999, the Partnership
also earned $717,096, $456,050, and $429,997, respectively,  attributable to net
income earned by  unconsolidated  joint  ventures in which the  Partnership is a
co-venturer    and   Properties    owned    indirectly    with   affiliates   as
tenants-in-common.  The increase in net income  earned by  unconsolidated  joint
ventures during 2001 and 2000 each as compared to the previous year is primarily
due to the  Partnership  investing  in CNL VII & XVII Lincoln  Joint  Venture in
April 2001, CNL VII, XV Columbus Joint Venture in August 2001,  TGIF  Pittsburgh
Joint Venture,  in June 2000, and Properties in Colorado  Springs,  Colorado and
Montgomery,    Alabama,   with   affiliates   of   the   General   Partners   as
tenants-in-common in August 2000 and November 1999,  respectively,  as described
above in "Capital Resources." In addition,  the increase in net income earned by
unconsolidated  joint  ventures  during 2001, as compared to 2000, was partially
the result of the  Partnership  acquiring an  additional  45% interest in Duluth
Joint Venture in October 2000, as described above in "Capital Resources."

         During the year ended  December 31, 2001,  three  lessees (or groups of
affiliated  tenants) of the  Partnership  and its  consolidated  joint  venture,
Golden  Corral  Corporation,  Jack in the Box Inc.  and Jack in the Box  Eastern
Division,  L.P.  (which are affiliated  entities under common control of Jack in
the Box Inc.)  (hereinafter  referred to as "Jack in the Box Inc."),  and Waving
Leaves,  Inc., each contributed more than ten percent of the Partnership's total
rental,  earned and mortgage  interest income  (including rental income from the
Partnership's  consolidated joint venture and the Partnership's  share of rental
and earned income from  Properties  owned by  unconsolidated  joint ventures and
Properties owned with affiliates of the General Partners as  tenants-in-common).
As of December 31, 2001, Golden Corral  Corporation was the lessee under a lease
relating to six  restaurants,  Jack in the Box Inc.  was the lessee under leases
relating to four  restaurants,  and Waving  Leaves,  Inc.  was the lessee  under
leases  relating  to four  restaurants.  It is  anticipated  that,  based on the
minimum rental payments required by the leases, Golden Corral Corporation,  Jack
in the Box Inc., and Waving Leaves,  Inc. each will continue to contribute  more
than ten percent of the Partnership's total rental, earned and mortgage interest
income during 2002. In addition,  during the year ended December 31, 2001,  four
Restaurant  Chains,  Golden Corral,  Hardee's,  Jack in the Box and Burger King,
each  accounted  for more than ten percent of the  Partnership's  total  rental,
earned  and  mortgage   interest  income   (including  rental  income  from  the
Partnership's  consolidated joint venture and the Partnership's  share of rental
and earned income from  Properties  owned by  unconsolidated  joint ventures and
Properties owned with affiliates of the General Partners as  tenants-in-common).
In 2002, it is anticipated that these four Restaurant  Chains each will continue
to account for more than ten percent of the Partnership's  total rental,  earned
and mortgage  interest  income to which the  Partnership  is entitled  under the
terms of the leases.  Any failure of these  lessees or  Restaurant  Chains could
materially  affect the  Partnership's  income if the  Partnership is not able to
re-lease the Properties in a timely manner.

         During  the  years  ended  December  31,  2001,  2000,  and  1999,  the
Partnership earned $101,543, $166,946, and $186,933,  respectively,  in interest
and other  income.  The decrease in interest and other  income  during 2001,  as
compared to 2000, was primarily  attributable to the Partnership  collecting the
outstanding  balance  of the  mortgage  note  related  to the  1995  sale of the
Property in  Florence,  South  Carolina  during  2001,  as described in "Capital
Resources."  The decrease in interest and other income during 2001 was partially
offset by an  increase  in  interest  income  earned  on the net sales  proceeds
relating to the sale of several  Properties  pending the reinvestment of the net
sales  proceeds in  additional  Properties.  The  decrease in interest and other
income  during  2000,  as compared to 1999,  is  primarily  attributable  to the
Partnership  collecting the outstanding  balance of the mortgage note related to
the 1995 sale of the Property in Jacksonville, Florida during 1999, as described
in "Capital Resources." In addition,  the decrease in 2000, as compared to 1999,
was  partially  attributable  to the fact that in November  1999,  the net sales
proceeds  from  the 1999  sale of the  Property  in  Maryville,  Tennessee  were
invested in an IHOP  Property in  Montgomery,  Alabama,  as  described  above in
"Capital Resources."

         Operating expenses, including depreciation and amortization expense and
provision for write-down of assets were $909,120,  $498,933,  and $637,069,  for
the years ended December 31, 2001, 2000, and 1999, respectively. The increase in
operating expenses during 2001, as compared to 2000, was partially  attributable
to the Partnership  recording a provision for write-down of assets, as described
below.  The  increase in operating  expenses  during  2001,  was also  partially
attributable  to an increase in the costs incurred for  administrative  expenses
for  servicing  the  Partnership  and  its  Properties,   as  permitted  by  the
Partnership  agreement.  In addition,  the increase  during 2001, as compared to
2000,  was  partially  due to the  fact  that  the  tenant  of the  Property  in
Saddlebrook, Florida ceased restaurant operations in April 2001. The Partnership
incurred  operating  expenses  such as insurance  and real estate tax  expenses,
relating to this Property.  The Partnership  sold the Property in December 2001.
The increase in operating  expenses during 2001 was partially  offset by and the
decrease  during 2000,  as compared to 1999,  was partially due to the fact that
the   Partnership   incurred   $35,134  and  $160,426   during  2000  and  1999,
respectively,  in transaction  costs related to the General  Partners  retaining
financial and legal  advisors to assist them in evaluating and  negotiating  the
proposed  and  terminated  merger  with APF, as  described  in  "Termination  of
Merger." No such expenses were incurred during the year ended December 31, 2001.
In  addition,  the increase in operating  expenses  during 2001,  as compared to
2000, was partially due to the Partnership  incurring additional state taxes due
to changes in tax laws of a state in which the Partnership conducts business. In
addition,  the increase in operating  expenses  during 2001 as compared to 2000,
was  partially  offset by, and the decrease  during 2000 as compared to 1999 was
partially  attributable to a decrease in depreciation expense as a result of the
sales of several Properties during 2000 and 2001.

         During the year ended  December 31, 2001,  the  Partnership  recorded a
provision  for  write-down  of assets in the amount of $279,862  due to the fact
that the  tenant of the  Property  in  Saddlebrook,  Florida  ceased  restaurant
operations and vacated the Property.  The provision  represented  the difference
between the net  carrying  value of the  Property at  September  30,2001 and the
anticipated  sales price for the Property.  The Partnership sold the Property in
December 2001, as described  above.  No such provisions were recorded during the
years ended December 31, 2000 and 1999.

         In  connection  with  the  sale  of its  Property  in  Florence,  South
Carolina,  during 1995, the Partnership  recognized a gain of $122,996,  $1,147,
and $1,135, for the years ended December 31, 2001, 2000, and 1999, respectively.
In  accordance  with  Statement  of  Financial   Accounting  Standards  No.  66,
"Accounting for Sales of Real Estate," the  Partnership  recorded the sale using
the  installment  sales method.  As such,  the gain on sale was deferred and was
being recognized as income  proportionately  as payments under the mortgage note
were collected. For federal income tax purposes, a gain of approximately $93,421
from the sale of this  Property  was also  deferred  during  1995 and was  being
recognized  as payments  under the mortgage  note were  collected.  In February,
2001,  the  Partnership  collected  the  outstanding  balance  relating  to  the
promissory note  collateralized by the Property.  As a result,  during 2001, the
Partnership recognized the remaining deferred gain of $122,996.

         As a result of the sales of several Properties during 2001 and 2000, as
described  above  in  "Capital  Resources,"  the  Partnership  recognized  gains
totaling  $259,126 and  $877,200,  respectively.  As a result of the sale of the
Property in Maryville,  Tennessee,  during 1999, as described  above in "Capital
Resources" the  Partnership  recognized a gain of $188,691 during the year ended
December 31, 1999.

         The  restaurant  industry,  as a  whole,  has  been  one  of  the  many
industries  affected  by  the  general  slowdown  in  the  economy.   While  the
Partnership has experienced  some losses due to the financial  difficulties of a
limited number of restaurant operators, the General Partners remain confident in
the overall  performance  of the  fast-food  and family style  restaurants,  the
concepts that  comprise the  Partnership's  portfolio.  Industry data shows that
these  restaurant  concepts  continue to outperform  and remain more stable than
high-end  restaurants,  those  that  have been more  adversely  affected  by the
slowing economy.

         The  Partnership's  leases  as of  December  31,  2001,  are  generally
triple-net  leases and  contain  provisions  that the General  Partners  believe
mitigate  the adverse  effect of  inflation.  Such  provisions  include  clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified  level and/or  automatic  increases in base rent at specified  times
during the term of the lease.  Inflation,  overall,  has had a minimal effect on
results of operations of the  Partnership.  Continued  inflation  also may cause
capital  appreciation of the  Partnership's  Properties.  Inflation and changing
prices, however, also may have an adverse impact on the sales of the restaurants
and on potential capital appreciation of the Properties.

         In December 1999, the Securities and Exchange  Commission  released SAB
101, which provides the staff's view in applying generally  accepted  accounting
principles  to  selected  revenue  recognition  issues.  SAB  101  requires  the
Partnership  to defer  recognition  of certain  percentage  rental  income until
certain defined  thresholds are met. The  Partnership  adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
partnership's result of operations.

         In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business  Combinations" (FAS 141) and
Statement  of  Financial  Accounting  Standards  No.  142  "Goodwill  and  Other
Intangible  Assets" (FAS 142). The  Partnership has reviewed both statements and
has determined  that both FAS 141 and FAS 142 do not apply to the Partnership as
of December 31, 2001.

         In October  2001,  the  Financial  Accounting  Standards  Board  issued
Statement  of  Financial  Accounting  Standards  No.  144  "Accounting  for  the
Impairment or Disposal of Long-Lived  Assets" (FAS 144). This statement requires
that a long-lived asset be tested for recoverability  whenever events or changes
in circumstances  indicate that its carrying amount may not be recoverable.  The
carrying  amount of a long-lived  asset is not recoverable if it exceeds the sum
of the  undiscounted  cash flows  expected to result  from the use and  eventual
disposition of the asset.  The assessment is based on the carrying amount of the
asset  at the  date it is  tested  for  recoverability.  An  impairment  loss is
recognized  when the  carrying  amount of a  long-lived  asset  exceeds its fair
value.  If an  impairment  is  recognized,  the  adjusted  carrying  amount of a
long-lived asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the  partnership's  recording of impairment  losses as this  Statement
retained  the  fundamental  provisions  of  FAS  No.  121  "Accounting  for  the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."

Termination of Merger

         On March 11, 1999, the  Partnership  entered into an Agreement and Plan
of Merger with APF,  pursuant to which the Partnership  would be merged with and
into a subsidiary of APF.  Under the  Agreement  and Plan of Merger,  APF was to
issue shares of its common stock as  consideration  for the Merger.  On March 1,
2000, the General  Partners and APF announced  that they had mutually  agreed to
terminate  the  Agreement  and Plan of Merger  entered  into in March 1999.  The
agreement  to terminate  the  Agreement  and Plan of Merger was based,  in large
part,  on the General  Partners'  concern  that,  in light of market  conditions
relating to publicly  traded real  estate  investment  trusts,  the value of the
transaction  had  diminished.  As a result  of such  diminishment,  the  General
Partners' ability to unequivocally recommend voting for the transaction,  in the
exercise  of their  fiduciary  duties,  had  become  questionable.  The  General
Partners are continuing to evaluate  strategic  alternatives for the Partnership
including alternatives to provide liquidity to the Limited Partners.

Interest Rate Risk

         The  Partnership  has  provided  a fixed rate note to a  borrower.  The
General  Partners  believe that the estimated fair value of the note at December
31, 2001  approximated  the outstanding  principal  amounts.  The Partnership is
exposed to equity loss in the event of changes in interest rates.  The following
table  presents the expected cash flows of principal that are sensitive to these
changes:

                                           Notes Fixed Rates
                                        -----------------------


                    2002                             $       --
                    2003                                     --
                    2004                                103,581
                    2005                                     --
                    2006                                     --
                    Thereafter                               --
                                         -----------------------

                                                  $     103,581
                                         =======================

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

         The Partnership accepted a promissory note in conjunction with the sale
of a Property. The General Partners believe that the estimated fair value of the
promissory  note at December 31, 2001  approximated  the  outstanding  principal
amount.

Item 8.  Financial Statements and Supplementary Data


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                                    CONTENTS



                                                                       Page
Report of Independent Certified Public Accountants                      19

Financial Statements:

     Balance Sheets                                                     20

     Statements of Income                                               21

     Statements of Partners' Capital                                    22

     Statements of Cash Flows                                        23-24

     Notes to Financial Statements                                   25-42




<PAGE>




               Report of Independent Certified Public Accountants






To the Partners
CNL Income Fund VII, Ltd.

In our opinion,  the accompanying  balance sheets and the related  statements of
income,  of partners'  capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund VII, Ltd. (a Florida limited
partnership)  at December 31, 2001 and 2000,  and the results of its  operations
and its cash flows for each of the three years in the period ended  December 31,
2001 in conformity with accounting  principles  generally accepted in the United
States  of  America.  In  addition,  in our  opinion,  the  financial  statement
schedules listed in the index appearing under item 14(a)(2)  present fairly,  in
all  material  respects,   the  information  set  forth  therein  when  read  in
conjunction with the related  financial  statement  statements.  These financial
statements  and financial  statements  schedules are the  responsibility  of the
Partnership's  management;  our responsibility is to express an opinion on these
financial  statements and financial  statement schedules based on our audits. We
conducted our audits of these  statements in accordance with auditing  standards
generally  accepted in the United States of America,  which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test basis,  evidence  supporting  the amounts and  disclosures in the financial
statements,  assessing the accounting  principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.


/s/ PricewaterhouseCoopers LLP

Orlando, Florida
February 8, 2002



<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                                     December 31,
                                                                              2001                  2000
                                                                         ----------------     -----------------

 <c>
                                ASSETS

   Land and buildings on operating leases, net                               $11,333,419           $11,297,040
   Net investment in direct financing leases                                   2,452,964             2,548,324
   Investment in joint ventures                                                8,212,208             6,452,604
   Mortgage and other notes receivable, less deferred
        gain                                                                     104,717               994,593
   Cash and cash equivalents                                                   1,747,363             1,454,025
   Certificate of deposit                                                             --               103,500
   Restricted cash                                                                    --             1,503,929
   Receivables, less allowance for doubtful accounts of
        $504 in 2000                                                              74,097                86,351
   Due from related parties                                                       12,968                 1,256
   Accrued rental income, less allowance for doubtful
        accounts of $9,845 in 2000                                             1,058,589             1,078,762
   Other assets                                                                   76,895                87,530
                                                                         ----------------     -----------------

                                                                             $25,073,220           $25,607,914
                                                                         ================     =================

                   LIABILITIES AND PARTNERS' CAPITAL

   Accounts payable                                                            $  12,306             $  31,415
   Distributions payable                                                         675,000               675,000
   Due to related parties                                                         21,837                67,815
   Rents paid in advance and deposits                                             25,716                 8,315
                                                                         ----------------     -----------------
            Total liabilities                                                    734,859               782,545

   Minority interest                                                             141,790               144,368

   Partners' capital                                                          24,196,571            24,681,001
                                                                         ----------------     -----------------

                                                                             $25,073,220           $25,607,914
                                                                         ================     =================


                See accompanying notes to financial statements.

<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                              STATEMENTS OF INCOME


                                                                                 Year Ended December 31,
                                                                      2001                 2000                1999
                                                                ------------------   ------------------   ---------------

Revenues:
     Rental income from operating leases                            $   1,559,410        $   1,765,623      $  1,914,671
     Earned income from direct financing leases                           307,290              380,322           403,371
     Contingent rental income                                              75,571               91,842            76,601
     Interest and other income                                            101,543              166,946           186,933
                                                                ------------------   ------------------   ---------------
                                                                        2,043,814            2,404,733         2,581,576
                                                                ------------------   ------------------   ---------------
Expenses:
     General operating and administrative                                 261,329              162,242           139,519
     Professional services                                                 60,021               24,451            28,903
     State and other taxes                                                 61,173               14,209            14,422
     Depreciation                                                         246,735              262,897           293,799
     Provision for write-down of assets                                   279,862                   --                --
     Transaction costs                                                         --               35,134           160,426
                                                                ------------------   ------------------   ---------------
                                                                          909,120              498,933           637,069
                                                                ------------------   ------------------   ---------------

Income Before Gain on Sale of Assets, Minority Interest in
     Income of Consolidated Joint Venture and Equity in
     Earnings of Unconsolidated Joint Ventures                          1,134,694            1,905,800         1,944,507

Gain on Sale of Assets                                                    382,122              878,347           189,826

Minority Interest in Income of Consolidated
     Joint Venture                                                        (18,342 )            (18,682 )         (18,640 )

Equity in Earnings of Unconsolidated Joint
     Ventures                                                             717,096              456,050           429,997
                                                                ------------------   ------------------   ---------------

Net Income                                                          $   2,215,570        $   3,221,515      $  2,545,690
                                                                ==================   ==================   ===============

Allocation of Net Income
     General partners                                                   $      --            $      --        $   25,187
     Limited partners                                                   2,215,570            3,221,515         2,520,503
                                                                ------------------   ------------------   ---------------

                                                                    $   2,215,570        $   3,221,515      $  2,545,690
                                                                ==================   ==================   ===============

Net Income Per Limited Partner Unit                                   $     0.074          $     0.107        $    0.084
                                                                ==================   ==================   ===============

Weighted Average Number of
     Limited Partner Units Outstanding                                 30,000,000           30,000,000        30,000,000
                                                                ==================   ==================   ===============

                See accompanying notes to financial statements.


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                         STATEMENTS OF PARTNERS' CAPITAL

                  Years Ended December 31, 2001, 2000, and 1999


                                            General Partners                                           Limited Partners
                                 ---------------------------------------    -------------------------------------------------------
                                                         Accumulated                                               Accumulated
                                    Contributions          Earnings         Contributions      Distributions         Earnings
                                  ------------------   -----------------   ----------------   ----------------   -----------------

   Balance, December 31, 1998           $     1,000         $   204,744      $  30,000,000      $ (22,877,623 )     $  20,425,675

       Distributions to limited
         partners ($0.090 per
         limited partner unit)                   --                  --                 --         (2,700,000 )                --
       Net income                                --              25,187                 --                 --           2,520,503
                                  ------------------   -----------------   ----------------   ----------------   -----------------

   Balance, December 31, 1999                 1,000             229,931         30,000,000        (25,577,623 )        22,946,178

       Distributions to limited
         partners ($0.090 per
         limited partner unit)                   --                  --                 --         (2,700,000 )                --
       Net income                                --                  --                 --                 --           3,221,515
                                  ------------------   -----------------   ----------------   ----------------   -----------------

   Balance, December 31, 2000                 1,000             229,931         30,000,000        (28,277,623 )        26,167,693

       Distributions to limited
         partners ($0.090 per
         limited partner unit)                   --                  --                 --         (2,700,000 )                --
       Net income                                --                  --                 --                 --           2,215,570
                                  ------------------   -----------------   ----------------   ----------------   -----------------

   Balance, December 31, 2001           $     1,000         $   229,931      $  30,000,000      $ (30,977,623 )     $  28,383,263
                                  ==================   =================   ================   ================   =================
                See accompanying notes to financial statements.
<Page>

----------------
   Syndication
      Costs            Total
  --------------   --------------

   $ (3,440,000 )    $24,313,796



             --       (2,700,000 )
             --        2,545,690
  --------------   --------------

     (3,440,000 )     24,159,486



             --       (2,700,000 )
             --        3,221,515
  --------------   --------------

     (3,440,000 )     24,681,001



             --       (2,700,000 )
             --        2,215,570
  --------------   --------------

   $ (3,440,000 )    $24,196,571
  ==============   ==============

                See accompanying notes to financial statements.








<PAGE>
                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                            STATEMENTS OF CASH FLOWS


                                                                                   Year Ended December 31,
                                                                       2001                  2000                1999
                                                                  ----------------    -------------------    ---------------

Increase (Decrease) in Cash and Cash Equivalents:

   Cash Flows from Operating Activities:
      Cash received from tenants                                      $  2,085,791          $  2,266,898         $  2,369,760
      Distributions from unconsolidated joint ventures                     726,627               508,532              348,952
      Cash paid for expenses                                              (448,740 )            (303,954 )           (217,856 )
      Interest received                                                    115,585               148,533              178,637
                                                                  -----------------   -------------------   ------------------
         Net cash provided by operating
             activities                                                  2,479,263             2,620,009            2,679,493
                                                                  -----------------   -------------------   ------------------

   Cash Flows from Investing Activities:
      Additions to land and buildings on operating leases               (1,495,699 )                  --                   --
      Proceeds from sale of assets                                       1,094,282             4,122,336            1,059,954
      Investment in certificate of deposit                                 100,000              (100,000 )                 --
      Investment in joint ventures                                      (1,769,135 )          (2,361,644 )         (1,196,927 )
      Liquidating distribution from joint venture                               --               461,208                   --
      Decrease (increase) in restricted cash                             1,503,682            (1,503,682 )                 --
      Collections on mortgage notes receivable                           1,101,865                10,279              245,733
                                                                  -----------------   -------------------   ------------------
         Net cash provided by investing activities                         534,995               628,497              108,760
                                                                  -----------------   -------------------   ------------------

   Cash Flows from Financing Activities:
      Distributions to limited partners                                 (2,700,000 )          (2,700,000 )         (2,700,000 )
      Distributions to holders of minority interest                        (20,920 )             (19,829 )            (19,730 )
                                                                  -----------------   -------------------   ------------------
      Net cash used in financing activities                             (2,720,920 )          (2,719,829 )         (2,719,730 )
                                                                  -----------------   -------------------   ------------------

Net Increase in Cash and Cash Equivalents                                  293,338               528,677               68,523

Cash and Cash Equivalents at Beginning of Year                           1,454,025               925,348              856,825
                                                                  -----------------   -------------------   ------------------

Cash and Cash Equivalents at End of Year                              $  1,747,363          $  1,454,025          $   925,348
                                                                  =================   ===================   ==================




                See accompanying notes to financial statements.
<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                      STATEMENTS OF CASH FLOWS - CONTINUED


                                                                             Year Ended December 31,
                                                                    2001               2000              1999
                                                              -----------------   ---------------    --------------

Reconciliation of Net Income to Net Cash Provided
    by Operating Activities:

      Net Income                                                   $ 2,215,570        $3,221,515        $2,545,690
                                                              -----------------   ---------------    --------------
      Adjustments to reconcile net income to net
         cash provided by operating
         activities:
             Depreciation                                              246,735           262,897           293,799
             Minority interest in income of
                consolidated joint venture                              18,342            18,682            18,640
             Gain on sale of assets                                   (382,122 )        (878,347 )        (189,826 )
             Provision for loss on assets                              279,862                --                --
             Equity in earnings of unconsolidated joint
                ventures, net of distributions                           9,531            53,738           (81,045 )
             Decrease (increase) in receivables                         12,254           (13,707 )           5,834
             Increase in due from related parties                      (11,712 )          (1,256 )              --
             Decrease (increase) in interest receivable                 18,335           (13,064 )           2,050
             Decrease (increase) in other assets                        10,635           (12,888 )         (10,104 )
             Decrease in net investment in direct
                financing leases                                        95,360           100,821            92,237
             Decrease (increase) in accrued rental
                income                                                  14,159           (59,795 )         (81,057 )
             Increase (decrease) in accounts payable                   (19,109 )         (65,479 )          88,175
             Increase (decrease) in due to related
                parties                                                (45,978 )           8,684            34,020
             Increase (decrease) in rents paid in
                advance and deposits                                    17,401            (1,792 )         (38,920 )
                                                              -----------------   ---------------    --------------
                  Total adjustments                                    263,693          (601,506 )         133,803
                                                              -----------------   ---------------    --------------

Net Cash Provided by Operating Activities                          $ 2,479,263        $2,620,009        $2,679,493
                                                              =================   ===============    ==============

Supplemental Schedule of Non-Cash Financing Activities:

         Promissory note accepted in exchange for
             sale of land and building                              $  103,581            $   --            $   --
                                                              =================   ===============    ==============

         Distributions declared and unpaid at
             December 31                                            $  675,000         $ 675,000         $ 675,000
                                                              =================   ===============    ==============


                See accompanying notes to financial statements.

</TABLE>

<PAGE>

                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2001, 2000, and 1999


1.       Significant Accounting Policies:
         -------------------------------

         Organization  and Nature of Business - CNL Income Fund VII,  Ltd.  (the
         "Partnership") is a Florida limited  partnership that was organized for
         the purpose of acquiring both newly constructed and existing restaurant
         properties,  as well as properties  upon which  restaurants  were to be
         constructed,  which are leased  primarily  to operators of national and
         regional fast-food and family-style restaurant chains.

         The general partners of the Partnership are CNL Realty Corporation (the
         "Corporate  General  Partner"),  James M.  Seneff,  Jr.  and  Robert A.
         Bourne.  Mr.  Seneff and Mr.  Bourne are also 50%  shareholders  of the
         Corporate General Partner. The general partners have responsibility for
         managing the day-to-day operations of the Partnership.

         Real  Estate  and  Lease  Accounting  -  The  Partnership  records  the
         acquisition of land and buildings at cost,  including  acquisition  and
         closing costs. Land and buildings are leased to unrelated third parties
         generally  on a  triple-net  basis,  whereby  the  tenant is  generally
         responsible  for  all  operating  expenses  relating  to the  property,
         including  property  taxes,  insurance,  maintenance  and repairs.  The
         leases are  accounted  for using  either the  direct  financing  or the
         operating methods. Such methods are described below:

                  Direct financing method - The leases accounted for using the
                  direct financing method are recorded at their net investment
                  (which at the inception of the lease generally represents the
                  cost of the asset) (Note 4). Unearned income is deferred and
                  amortized to income over the lease terms so as to produce a
                  constant periodic rate of return on the Partnership's net
                  investment in the leases.

                  Operating method - Land and building leases accounted for
                  using the operating method are recorded at cost, revenue is
                  recognized as rentals are earned and depreciation is charged
                  to operations as incurred. Buildings are depreciated on the
                  straight-line method over their estimated useful lives of 30
                  years. When scheduled rentals vary during the lease term,
                  income is recognized on a straight-line basis so as to produce
                  a constant periodic rent over the lease term commencing on the
                  date the property is placed in service.


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                          NOTES TO FINANCIAL STATEMENTS

                  Years Ended December 31, 2001, 2000, and 1999


1.       Significant Accounting Policies - Continued:

                  Accrued rental income represents the aggregate amount of
                  income recognized on a straight-line basis in excess of
                  scheduled rental payments to date. Whenever a tenant defaults
                  under the terms of its lease, or events or changes in
                  circumstance indicate that the tenant will not lease the
                  property through the end of the lease term, the Partnership
                  either reserves or reverses the cumulative accrued rental
                  income balance.

         When  the  properties  are  sold,  the  related  cost  and  accumulated
         depreciation  for operating  leases and the net  investment  for direct
         financing leases,  plus any accrued rental income, are removed from the
         accounts and gains or losses from sales are  reflected  in income.  The
         general  partners of the Partnership  review  properties for impairment
         whenever events or changes in circumstances  indicate that the carrying
         amount of the assets may not be  recoverable  through  operations.  The
         general partners  determine whether an impairment in value has occurred
         by comparing the estimated future  undiscounted  cash flows,  including
         the  residual  value of the  property,  with the  carrying  cost of the
         individual  property.  If an impairment  is  indicated,  the assets are
         adjusted to their fair value.  Although the general  partners have made
         their best estimate of these factors based on current conditions, it is
         reasonably  possible  that  changes  could occur in the near term which
         could adversely affect the general partners' estimate of net cash flows
         expected to be  generated  from its  properties  and the need for asset
         impairment write-downs.

         When the  collection  of amounts  recorded as rental or other income is
         considered  to be  doubtful,  an  adjustment  is made to  increase  the
         allowance for doubtful accounts,  which is netted against  receivables,
         although  the  Partnership  continues  to  pursue  collection  of  such
         amounts.  If amounts are subsequently  determined to be  uncollectible,
         the  corresponding  receivable and allowance for doubtful  accounts are
         decreased accordingly.

         Investment in Joint Ventures - The  Partnership  accounts for its 83.3%
         interest  in San Antonio  #849 Joint  Venture  using the  consolidation
         method.   Minority  interest  represents  the  minority  joint  venture
         partner's  proportionate  share  of the  equity  in  the  Partnership's
         consolidated joint venture. All significant  intercompany  accounts and
         transactions have been eliminated.


<PAGE>


                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


1.       Significant Accounting Policies - Continued:
         -------------------------------------------

         The  Partnership's  investments in CNL Restaurant  Investments  II, Des
         Moines Real Estate Joint Venture,  CNL Mansfield Joint Venture,  Duluth
         Joint  Venture,  and  TGIF  Pittsburgh  Joint  Venture,  CNL VII & XVII
         Lincoln  Joint  Venture and CNL VII, XV  Columbus  Joint  Venture and a
         property in Smithfield, North Carolina, a property in Miami, Florida, a
         property in Montgomery,  Alabama,  and a property in Colorado  Springs,
         Colorado,   for  which  each  of  the  four   properties   is  held  as
         tenants-in-common   with  affiliates  of  the  general  partners,   are
         accounted  for  using  the  equity  method  since  each  joint  venture
         agreement  requires  the consent of all  partners on all key  decisions
         affecting the operations of the underlying property.

         Cash and Cash Equivalents - The Partnership considers all highly liquid
         investments  with a maturity of three months or less when  purchased to
         be cash  equivalents.  Cash  and cash  equivalents  consist  of  demand
         deposits at commercial  banks and money market funds (some of which are
         backed by government  securities).  Cash equivalents are stated at cost
         plus accrued interest, which approximates market value.

         Cash  accounts  maintained  on  behalf  of the  Partnership  in  demand
         deposits  at  commercial  banks  and  money  market  funds  may  exceed
         federally insured levels;  however, the Partnership has not experienced
         any losses in such accounts.

         Income Taxes - Under  Section 701 of the  Internal  Revenue  Code,  all
         income,  expenses and tax credit items flow through to the partners for
         tax  purposes.  Therefore,  no  provision  for federal  income taxes is
         provided in the accompanying  financial statements.  The Partnership is
         subject to certain state taxes on its income and property.

         Additionally,  for tax  purposes,  syndication  costs are  included  in
         Partnership equity and in the basis of each partner's  investment.  For
         financial  reporting  purposes  syndication  costs are  netted  against
         partners' capital and represent a reduction of Partnership equity and a
         reduction in the basis of each partner's investment. See "Income Taxes"
         footnote for a  reconciliation  of net income for  financial  reporting
         purposes to net income for federal income tax purposes.



<PAGE>


                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


1.       Significant Accounting Policies - Continued:
         -------------------------------------------

         Use of Estimates - The general  partners of the Partnership have made a
         number of estimates and assumptions relating to the reporting of assets
         and liabilities and the disclosure of contingent assets and liabilities
         to prepare these  financial  statements in  conformity  with  generally
         accepted  accounting  principles.  The more significant areas requiring
         the use of  management  estimates  relate to the allowance for doubtful
         accounts  and future  cash flows  associated  with  long-lived  assets.
         Actual results could differ from those estimates.

         Reclassification   -  Certain  items  in  the  prior  years'  financial
         statements  have been  reclassified  to conform  to 2001  presentation.
         These  reclassification had no effect on total partners' capital or net
         income.

         Staff  Accounting  Bulletin No. 101 ("SAB 101") - In December 1999, the
         Securities and Exchange Commission released SAB 101, which provides the
         staff's view in applying  generally accepted  accounting  principles to
         selected revenue  recognition  issues. SAB 101 requires the Partnership
         to defer recognition of certain  percentage rental income until certain
         defined  thresholds are met. The Partnership  adopted SAB 101 beginning
         January  1,  2000.  Implementation  of SAB 101 did not have a  material
         impact on the Partnership's results of operations.

         Statements  of  Financial  Accounting  Standard No. 141 ("FAS 141") and
         Statement  of  Financial  Accounting  Standard No. 142 ("FAS 142") - In
         July 2001, the Financial Accounting Standards Board issued Statement of
         Financial  Accounting  Standards No. 141 "Business  Combinations"  (FAS
         141) and Statement of Financial  Accounting Standards No. 142 "Goodwill
         and Other  Intangible  Assets" (FAS 142). The  Partnership has reviewed
         both statements and has determined that both FAS 141 and FAS 142 do not
         apply to the Partnership as of December 31, 2001.

         Statement  of  Financial  Accounting  Standard No. 144 ("FAS 144") - In
         October 2001, the Financial Accounting Standards Board issued Statement
         of  Financial   Accounting   Standards  No.  144  "Accounting  for  the
         Impairment or Disposal of Long-Lived  Assets" (FAS 144). This statement
         requires that a long-lived asset be tested for recoverability  whenever
         events or changes in  circumstances  indicate that its carrying  amount
         may not be recoverable.  The carrying  amount of a long-lived  asset is
         not  recoverable if it exceeds the sum of the  undiscounted  cash flows
         expected to result from the use and eventual  disposition of the asset.
         The assessment is based on the carrying amount of the asset at

<PAGE>



                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


1.       Significant Accounting Policies - Continued:
         -------------------------------------------

         the  date  it is  tested  for  recoverability.  An  impairment  loss is
         recognized when the carrying  amount of a long-lived  asset exceeds its
         fair value.  If an  impairment  is  recognized,  the adjusted  carrying
         amount of a long-lived asset is its new cost basis. The adoption of FAS
         144  did  not  have  any  effect  on  the  partnership's  recording  of
         impairment losses as this Statement retained the fundamental provisions
         of FAS No. 121 "Accounting for the Impairment of Long-Lived  Assets and
         for Long-Lived Assets to be Disposed of."

2.       Leases:
         ------

         The  Partnership  leases its land or land and  buildings  primarily  to
         operators  of  national  and  regional   fast-food   and   family-style
         restaurants.  The  leases are  accounted  for under the  provisions  of
         Statement of Financial  Accounting  Standards No. 13,  "Accounting  for
         Leases." The leases  generally  are  classified  as  operating  leases;
         however,  some leases have been classified as direct financing  leases.
         For the leases  classified  as direct  financing  leases,  the building
         portions of the property  leases are accounted for as direct  financing
         leases  while the land  portions of the  majority  of these  leases are
         operating  leases.  Substantially all leases are for 15 to 20 years and
         provide for minimum and  contingent  rentals.  In addition,  the tenant
         generally pays all property taxes and assessments,  fully maintains the
         interior and exterior of the  building and carries  insurance  coverage
         for public liability,  property damage, fire and extended coverage. The
         lease  options  generally  allow tenants to renew the leases for two to
         four  successive  five-year  periods  subject  to the  same  terms  and
         conditions as the initial  lease.  Most leases also allow the tenant to
         purchase the property at fair market value after a specified portion of
         the lease has elapsed.


<PAGE>


                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


3.       Land and Buildings on Operating Leases:
         --------------------------------------

         Land and  buildings on operating  leases  consisted of the following at
         December 31:
<TABLE>
<CAPTION>

                                                             2001                 2000
                                                       -----------------    -----------------

 <c>
                 Land                                       $ 6,756,854          $ 6,850,655
                 Buildings                                    6,714,927            6,671,945
                                                       -----------------    -----------------
                                                             13,471,781           13,522,600

                 Less accumulated depreciation               (2,138,362 )         (2,225,560 )
                                                       -----------------    -----------------

                                                           $ 11,333,419         $ 11,297,040
                                                       =================    =================
</TABLE>

         In June 2000, the Partnership sold its property in Pueblo, Colorado, to
         an unrelated third party and received net sales proceeds of $1,005,000,
         resulting  in a gain  of  $97,056.  In  August  2000,  the  Partnership
         reinvested  the  majority of the net sales  proceeds  in an  additional
         Property in Colorado Springs,  Colorado as  tenants-in-common  with CNL
         Income Fund XII, Ltd., a Florida  limited  partnership and an affiliate
         of the general partners (see Note 5).

         In September  2000,  the  Partnership  sold its property in  Brunswick,
         Georgia,  its property in Lake City,  Florida,  and three properties in
         Jacksonville,  Florida,  for which the land and  building of one of the
         properties was classified as a direct  financing  lease (see Note 4) to
         unrelated  third parties for a total of  approximately  $2,404,800  and
         received net sales proceeds of approximately $2,392,300, resulting in a
         total gain of $619,495.

         In addition,  in December  2000, the  Partnership  sold its property in
         Friendswood,  Texas for which the building was  classified  as a direct
         financing  lease  (see  Note 4) to the  tenant in  accordance  with the
         purchase option under the lease  agreement for $725,000  resulting in a
         gain of $160,649.

         In January 2001,  the  Partnership  reinvested  the net sales  proceeds
         received  from the 2000  sales  of  three  of its  properties,  (two in
         Jacksonville,  Florida and one in Lake City, Florida), in a Property in
         Baton Rouge,  Louisiana at an approximate  cost of $1,495,700 (see Note
         11).


<PAGE>


                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


3.       Land and Buildings on Operating Leases - Continued:
         --------------------------------------------------

         In addition,  in November 2001, the Partnership  sold its properties in
         Daytona Beach and Gainesville,  Florida and received net sales proceeds
         of $499,813  resulting in a gain of $184,894.  In  connection  with the
         sales of the properties,  the Partnership received $396,232 in cash and
         accepted a promissory note in the amount of $103,581 (see Note 7).

         During the year ended December 31, 2001, the Partnership  established a
         provision for write-down of assets in the amount of $279,862,  relating
         to the  property  in  Saddlebrook,  Florida.  The  tenant  vacated  the
         property and ceased restaurant  operations.  The provision  represented
         the  difference  between  the net  carrying  value of the  property  at
         September 30, 2001 and the anticipated sales price for the property. In
         addition,  in  December  2001,  the  Partnership  sold its  property in
         Saddlebrook,  Florida  and  received  net sales  proceeds  of  $698,050
         resulting in a gain of $74,232.

         The following is a schedule of the future  minimum lease payments to be
         received on noncancellable operating leases at December 31, 2001:

                        2002                                 $  1,501,360
                        2003                                    1,481,956
                        2004                                    1,480,939
                        2005                                    1,178,653
                        2006                                      973,102

                        Thereafter                              5,531,881
                                                     ---------------------
                                                            $  12,147,891
                                                     =====================

         Since  lease  renewal  periods  are  exercisable  at the  option of the
         tenant, the above table only presents future minimum lease payments due
         during  the  initial  lease  terms.  In  addition,  this table does not
         include any amounts for future contingent rentals which may be received
         on the leases based on a percentage of the tenant's gross sales.


<PAGE>


                            CNL INCOME FUND VII, LTD
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


4.       Net Investment in Direct Financing Leases:
         -----------------------------------------

         The  following  lists the  components  of the net  investment in direct
         financing leases at December 31:
<TABLE>
<CAPTION>

                                                                   2001                 2000
                                                              -----------------  -----------------

 <c>
          Minimum lease payments receivable                       $ 3,625,871          $ 4,028,512

          Estimated residual values                                   768,233              768,233

          Less unearned income                                     (1,941,140 )         (2,248,421 )
                                                              -----------------    -----------------

          Net investment in direct financing leases               $ 2,452,964          $ 2,548,324
                                                              =================    =================
</TABLE>

         The  following  is a schedule of future  minimum  lease  payments to be
         received on direct financing leases at December 31, 2001:

                             2002                        $  402,342
                             2003                           402,342
                             2004                           402,342
                             2005                           402,342
                             2006                           402,342
                             Thereafter                   1,614,161
                                                     -------------------

                                                        $ 3,625,871
                                                     ===================

         The above table does not include  future  minimum  lease  payments  for
         renewal  periods or for contingent  rental payments that may become due
         in future periods (see Note 3).

         During 2000, the Partnership  sold two of its properties for which land
         and buildings were classified as direct financing leases. In connection
         with the sale, the gross investment  (minimum lease payments receivable
         and the estimated  residual  value) and unearned income relating to the
         assets  classified as a direct financing  lease,  were removed from the
         accounts (see Note 3).

5.       Investment in Joint Ventures:
         ----------------------------

         The  Partnership  has an 18%  interest,  a 4.79%  interest  , and a 79%
         interest in the profits and losses of CNL  Restaurant  Investments  II,
         Des Moines Real Estate Joint Venture,  and CNL Mansfield Joint Venture,
         respectively. The remaining interests in these joint

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


5.       Investment in Joint Ventures - Continued:
         ----------------------------------------

         ventures are held by affiliates of the Partnership  which have the same
         general partners. The Partnership also has a 53% interest in a property
         in  Smithfield,  North  Carolina,  with  an  affiliate  of the  general
         partners,  as  tenants-in-common,  a 35.64%  interest  in a property in
         Miami,   Florida,  with  an  affiliate  of  the  general  partners,  as
         tenants-in-common  and a 71%  interest  in a  property  in  Montgomery,
         Alabama,    with   an   affiliate   of   the   general   partners,   as
         tenants-in-common.  Amounts  relating to its investment are included in
         investment in joint ventures.

         In  December  1999,  the  Partnership  entered  into  a  joint  venture
         arrangement,  Duluth Joint  Venture,  with CNL Income Fund V, Ltd., CNL
         Income Fund XIV,  Ltd.,  and CNL Income Fund XV,  Ltd.,  each a Florida
         limited partnership and affiliate of the general partners, to construct
         and hold one restaurant property in Duluth, Georgia. As of December 31,
         2000, the Partnership  contributed  approximately  $969,299 to purchase
         land and pay for construction  costs relating to the joint venture.  In
         October 2000,  the  Partnership  acquired an additional 45% interest in
         Duluth Joint Venture,  from CNL Income Fund V, Ltd. and CNL Income Fund
         XV, Ltd. for an aggregate  purchase price of approximately  $610,000 As
         of December  31,  2001,  the  Partnership  owned a 56%  interest in the
         profits and losses of the joint venture.

         In June 1999,  Halls Joint Venture,  in which the  Partnership  owned a
         51.1% interest,  sold its property to the tenant in accordance with the
         purchase option under the lease agreement for $891,915,  resulting in a
         gain to the joint venture of approximately  $239,300.  During 2000, the
         Partnership  and the  joint  venture  partner  liquidated  Halls  Joint
         Venture   and  the   Partnership   received   approximately   $460,900,
         representing  its pro rata share of the liquidation  proceeds.  In June
         2000,  the  Partnership  reinvested  approximately  $195,107  of  these
         proceeds  and  approximately   $240,000  from  the  payoff  of  a  note
         receivable  related  to the 1995 sale of a  property  in  Jacksonville,
         Florida, in a joint venture arrangement, TGIF Pittsburgh Joint Venture,
         with CNL Income  Fund XV,  Ltd.,  CNL Income  Fund XVI,  Ltd.,  and CNL
         Income Fund XVIII, Ltd., each of which is a Florida limited partnership
         and an  affiliate  of the general  partners  to  purchase  and hold one
         restaurant  property.  In January  2001,  the  Partnership  acquired an
         additional  interest in TGIF  Pittsburgh  Joint Venture from CNL Income
         Fund XVIII, Ltd., a Florida limited partnership and an affiliate of the
         general  partners,  for an aggregate  purchase  price of  approximately
         $500,000.  As of December  31,  2001,  the  Partnership  owned a 36.88%
         interest in the profits and losses of the joint venture.


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


5.       Investment in Joint Ventures - Continued:
         ----------------------------------------

         In August 2000,  the  Partnership  used the net sales proceeds from the
         sale of the  property  in Pueblo,  Colorado  to  acquire a property  in
         Colorado  Springs,  Colorado  as tenants in common with CNL Income Fund
         XII, Ltd.,  ("CNL XII") a Florida limited  partnership and affiliate of
         the general partners. In connection therewith,  the Partnership and the
         affiliate  entered into an agreement  whereby each co-tenant will share
         in  the  profits  and  losses  of the  property  in  proportion  to its
         applicable  percentage  interest.  The Partnership and CNL XII acquired
         this property from CNL BB Corp., an affiliate of the general  partners.
         As of December 31, 2000,  the  Partnership  owned a 43% interest in the
         property in Colorado Springs, Colorado (see Note 11).

         In April 2001, the Partnership used a portion of the net sales proceeds
         from the sale of its property in Friendswood,  Texas (see Note 3) and a
         portion of the 2001  collection of the promissory  note (see Note 8) to
         enter into a joint  venture  arrangement,  CNL VII & XVII Lincoln Joint
         Venture, with CNL Income Fund XVII, Ltd., a Florida limited partnership
         and an  affiliate  of the  general  partners,  to hold  one  restaurant
         property.  The joint venture  acquired this property from CNL BB Corp.,
         an affiliate of the general  partners (see Note 11). As of December 31,
         2001, the Partnership owned a 14% interest in the profits and losses of
         the joint venture.

         In August 2001, the Partnership used the remaining  portion of the 2001
         collection  of the  promissory  note (see Note 8) to enter  into  joint
         venture  arrangement,  CNL VII, XV  Columbus  Joint  Venture,  with CNL
         Income Fund XV, Ltd., a Florida  limited  partnership  and affiliate of
         the general partners, to construct one restaurant property in Columbus,
         Georgia.  As of December  31, 2001,  the  Partnership  had  contributed
         approximately  $1,025,500  to  purchase  land and pay for  construction
         costs  relating to the joint  venture.  As of December  31,  2001,  the
         Partnership  owned a 68.75%  interest  in the profits and losses of the
         joint venture.

         CNL  Restaurant  Investments  II owns and leases six  properties  to an
         operator of national  fast-food or  family-style  restaurants,  and Des
         Moines Real Estate Joint Venture,  CNL Mansfield Joint Venture,  Duluth
         Joint Venture,  TGIF Pittsburgh  Joint Venture,  CNL VII & XVII Lincoln
         Joint  Venture,  and  CNL  VII,  XV  Columbus  Joint  Venture  and  the
         Partnership  and  affiliates,  as  tenants  in common in four  separate
         tenancy in common  arrangements,  each own and lease one property to an
         operator of national fast-food or family-style restaurants.


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


5.       Investment in Joint Ventures - Continued:
         ----------------------------------------

         The following presents the combined,  condensed  financial  information
         for the joint  ventures and the  properties  held as  tenants-in-common
         with affiliates at December 31:
<TABLE>
<CAPTION>

                                                                      2001                  2000
                                                                ----------------      ----------------

 <c>

             Land and buildings on operating leases, net             $18,806,455           $16,729,763
             Net investment in direct financing lease                  1,765,740               922,091
             Cash                                                         62,669               153,432
             Receivables                                                 241,628                 8,444
             Accrued rental income                                       398,419               236,243
             Other assets                                                  1,471                   810
             Liabilities                                                 256,902               172,475
             Partners' capital                                        21,019,480            17,878,308
             Revenues                                                  2,312,781             1,661,292
             Net income                                                1,905,726             1,326,080
</TABLE>

         The Partnership  recognized  income totaling  $717,096,  $456,050,  and
         $429,997  for the  years  ended  December  31,  2001,  2000,  and 1999,
         respectively, from these joint ventures and the four properties held as
         tenants in common with affiliates.

6.       Restricted Cash:
         ---------------

         As of December 31, 2000,  total net sales  proceeds of $1,503,682  from
         the sale of the Partnership's properties in Jacksonville and Lake City,
         Florida and Brunswick, Georgia plus accrued interest of $247 were being
         held in an  interest  bearing  account  pending the release of funds to
         acquire additional properties.  These funds were released by the escrow
         agent in 2001 and were  used to  acquire  a  property  in Baton  Rouge,
         Louisiana (see Note 3).

7.       Note Receivable:
         ---------------

         In connection with the sale of the property in Daytona Beach,  Florida,
         the  Partnership  accepted  an  uncollaterized  promissory  note in the
         principal sum of $103,581. The promissory note bears interest at a rate
         of 12.34% per annum,  and is being  collected  in 35 monthly,  interest
         only  installments  of $1,065,  with a balloon payment of principal and
         outstanding interest due in November 2004.

<pAGE>
                          CNL INCOME FUND VII, LTD. (A
                          Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


8.       Mortgage Notes Receivable:
         -------------------------

         In connection with the sale of its property in Florence, South Carolina
         during  1995,  the  Partnership  accepted  a  promissory  note  in  the
         principal  sum  of  $1,160,000,  collateralized  by a  mortgage  on the
         property.  The  promissory  note bore  interest at a rate of 10.25% per
         annum and was  being  collected  in 59 equal  monthly  installments  of
         $10,395,  including interest.  As a result of this sale being accounted
         for using the installment sales method for financial reporting purposes
         as required by  Statement  of Financial  Accounting  Standards  No. 66,
         "Accounting  for Sales of Real  Estate," the  Partnership  recognized a
         gain of $122,996,  $1,147,  and $1,135 for the years ended December 31,
         2001, 2000, and 1999,  respectively.  In February 2001, the Partnership
         received a balloon payment of $1,115,301 which included the outstanding
         principal balance and $14,419 of accrued interest.

9.       Allocations and Distributions:
         -----------------------------

         From inception through December 31, 1999, all net income and net losses
         of the  Partnership,  excluding  gains  and  losses  from  the  sale of
         properties,  were allocated 99 percent to the limited  partners and one
         percent to the general  partners.  From inception  through December 31,
         1999,  distributions  of net cash  flow  were  made 99  percent  to the
         limited  partners  and one percent to the general  partners;  provided,
         however, that the one percent of net cash flow to be distributed to the
         general partners was subordinated to receipt by the limited partners of
         an aggregate, ten percent,  cumulative,  noncompounded annual return on
         their adjusted capital contributions (the "10% Preferred Return").

         From inception through December 31, 1999, generally, net sales proceeds
         from the sale of properties not in liquidation of the  Partnership,  to
         the extent distributed,  were distributed first to the limited partners
         in an  amount  sufficient  to  provide  them with  their 10%  Preferred
         Return,  plus the return of their adjusted capital  contributions.  The
         general partners then received,  to the extent previously  subordinated
         and unpaid,  a one percent  interest in all prior  distributions of net
         cash flow and a return of their  capital  contributions.  Any remaining
         sales proceeds were  distributed 95 percent to the limited partners and
         five  percent  to the  general  partners.  Any gain  from the sale of a
         property  not  in  liquidation  of the  Partnership  was,  in  general,
         allocated in the same manner as net sales  proceeds are  distributable.
         Any loss from the sale of a property not in liquidation of the

<PAGE>



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


9.       Allocations and Distributions - Continued:
         -----------------------------------------

         Partnership  was, in general,  allocated first, on a pro rata basis, to
         partners  with  positive  balances  in  their  capital  accounts;   and
         thereafter,  95 percent to the limited partners and five percent to the
         general partners.

         Generally,  net sales  proceeds from a liquidating  sale of properties,
         will be used in the following order: (i) first to pay and discharge all
         of  the  Partnership's   liabilities  to  creditors,  (ii)  second,  to
         establish  reserves that may be deemed necessary for any anticipated or
         unforeseen liabilities or obligations of the Partnership,  (iii) third,
         to pay all of the Partnership's liabilities, if any, to the general and
         limited partners, (iv) fourth, after allocations,  of net income, gains
         and/or  losses,  to distribute  to the partners  with positive  capital
         accounts  balances,  in  proportion  to such  balances,  up to  amounts
         sufficient  to  reduce  such  positive   balances  to  zero,   and  (v)
         thereafter, any funds remaining shall then be distributed 95 percent to
         the limited partners and five percent to the general partners.

         Effective  January  2000,  the general  partners  waived their right to
         receive  future  distributions  from the  Partnership,  including  both
         distributions  of operating cash flow and  distributions of liquidation
         proceeds,   to  the  extent   that  the   cumulative   amount  of  such
         distributions would exceed the balance in the general partners' capital
         account as of December  31,  1999.  Accordingly,  for years  commencing
         January  1,  2000 and  after,  the  Partnership's  net  income  will be
         allocated entirely among the limited partners.  However,  if losses are
         allocated to the general  partners in a year, an amount of income equal
         to the sum of such losses may be allocated  to the general  partners in
         succeeding years. Accordingly,  the general partners were not allocated
         any net income and did not  receive any  distribution  during the years
         ended December 31, 2001 and 2000.

         During each of the years ended  December 31, 2001,  2000, and 1999, the
         Partnership   declared   distributions   to  the  limited  partners  of
         $2,700,000.  No distributions have been made to the general partners to
         date.


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


10.      Income Taxes:
         ------------

         The following is a reconciliation of net income for financial reporting
         purposes to net income for federal  income tax  purposes  for the years
         ended December 31:
<TABLE>
<CAPTION>

                                                                   2001               2000             1999
                                                               -------------      -------------     ------------
<S> <C>
           Net income for financial reporting purposes          $ 2,215,570         $3,221,515      $ 2,545,690

           Depreciation for tax reporting purposes in excess
               of depreciation for financial reporting
               purposes                                             (14,382 )          (19,345 )        (19,957 )

           Gain on sale of assets for financial reporting
               purposes  less than (in  excess)  of gain for
           tax                                                      109,317           (832,083 )       (188,377 )
               reporting purposes

           Provision for loss on assets                             279,862                 --               --

           Direct financing leases recorded as operating
               leases for tax reporting purposes                     95,360            100,821           92,237

           Equity in earnings of unconsolidated joint ventures
               for tax reporting purposes in excess of (less
               than) equity in earnings of
               unconsolidated joint ventures
               for financial reporting purposes                     (59,325 )           (6,585 )         54,093

           Accrued rental income                                     14,159            (59,795 )        (81,057 )

           Rents paid in advance                                     17,901             (1,792 )        (48,027 )

           Minority interest in timing differences of
               unconsolidated joint venture                            (728 )              981              981

           Allowance for doubtful accounts                             (504 )          (16,175 )        (12,174 )

           Capitalization  (Deduction) of transaction  costs
              for tax reporting purposes                                 --           (179,206 )        160,425
                                                               -------------      -------------     ------------

           Net income for federal income tax purposes           $ 2,657,230         $2,208,336      $ 2,503,834
                                                               =============      =============     ============

</TABLE>


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


11.      Related Party Transactions:
         --------------------------

         One of the individual general partners, James M. Seneff, Jr., is one of
         the principal  shareholders of CNL Holdings,  Inc. The other individual
         general partner, Robert A. Bourne, serves as President and Treasurer of
         CNL Financial  Group,  Inc., a wholly owned subsidiary of CNL Holdings,
         Inc. CNL APF Partners,  LP (the "Advisor") is a wholly owned subsidiary
         of CNL  Financial  Group,  Inc.  until  it  merged  with  CNL  American
         Properties  Fund,  Inc.  ("APF").  CNL Fund Advisors,  Inc., a majority
         owned subsidiary of CNL Financial Group,  Inc. until it merged with and
         into APF  effective  September  1,  1999,  served as the  Partnership's
         advisor until it assigned its rights and obligations under a management
         agreement with the  Partnership to the Advisor  effective July 1, 2000.
         The individual general partners are stockholders and directors of APF.

         In connection therewith,  the Partnership has agreed to pay the Advisor
         an annual, noncumulative, subordinated management fee of one percent of
         the  sum  of  gross  revenues  from  properties  wholly  owned  by  the
         Partnership  and the  Partnership's  allocable  share of gross revenues
         from joint ventures and the properties held as  tenants-in-common  with
         affiliates,  but not in  excess  of  competitive  fees  for  comparable
         services.  These fees will be incurred  and will be payable  only after
         the limited  partners  receive their 10% Preferred  Return.  Due to the
         fact that these fees are  noncumulative,  if the limited  partners have
         not received  their 10%  Preferred  Return in any  particular  year, no
         management  fee will be due or payable  for such  year.  As a result of
         such threshold, no management fees were incurred during the years ended
         December 31, 2001, 2000, and 1999.

         The Advisor is also entitled to receive a deferred,  subordinated  real
         estate disposition fee, payable upon the sale of one or more properties
         based on the lesser of one-half of a competitive real estate commission
         or  three  percent  of the  sales  price  if  the  Advisor  provides  a
         substantial amount of services in connection with the sale. However, if
         the net sales  proceeds are  reinvested in a replacement  property,  no
         such  real  estate   disposition  fees  will  be  incurred  until  such
         replacement   property  is  sold  and  the  net  sales   proceeds   are
         distributed.  The  payment  of  the  real  estate  disposition  fee  is
         subordinated to the receipt by the limited  partners of their aggregate
         10% Preferred  Return,  plus their adjusted capital  contributions.  No
         deferred,  subordinated real estate  disposition fees were incurred for
         the years ended December 31, 2001, 2000, and 1999.



<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


11.      Related Party Transactions:
         --------------------------

         During  the  years  ended  December  31,  2001,  2000,  and  1999,  the
         Partnership's   advisor  and  its  affiliate  provided  accounting  and
         administrative  services  to  the  Partnership  on a  day-to-day  basis
         including  services  during 2000 and 1999  relating to the proposed and
         terminated  merger.  The  Partnership  incurred  $170,123,  $91,926 and
         $102,417  for the  years  ended  December  31,  2001,  2000,  and 1999,
         respectively, for such services.

         During  2000,  the  Partnership  and CNL XII,  as  tenants  in  common,
         acquired  an  interest in a  Bennigan's  property in Colorado  Springs,
         Colorado from CNL BB Corp., an affiliate of the general partners, for a
         purchase  price  of   $2,226,134.   CNL  BB  Corp.  had  purchased  and
         temporarily  held title to this  property  in order to  facilitate  the
         acquisition of the property by the Partnership. The purchase price paid
         by the  Partnership  represented  the costs incurred by CNL BB Corp. to
         acquire and carry the property, including closing costs.

         In January 2001, the Partnership  acquired a property  located in Baton
         Rouge,  Louisiana from CNL Funding 2001-A,  LP, for a purchase price of
         approximately  $1,495,700  (see  Note  3).  CNL  Fund  2001-A,  LP is a
         Delaware limited  partnership and an affiliate of the general partners.
         CNL Funding 2001-A,  LP had purchased and temporarily held title to the
         property in order to facilitate the  acquisition of the property by the
         Partnership. The purchase price paid by the Partnership represented the
         cost  incurred  by CNL  Funding  2001-A,  LP to  acquire  and carry the
         property, including closing costs.

         In April 2001, the Partnership and CNL Income Fund XVII, Ltd. through a
         joint  venture  arrangement,  CNL  VII & XVII  Lincoln  Joint  Venture,
         acquired a Golden Corral  property  from CNL BB Corp.,  an affiliate of
         the general  partners,  for a total purchase  price of $1,740,374.  CNL
         Income  Fund  XVII,  Ltd.  is a  Florida  limited  partnership  and  an
         affiliate  of the general  partners.  CNL BB Corp.  had  purchased  and
         temporarily  held title to this  property  in order to  facilitate  the
         acquisition  of the property by the joint  venture.  The purchase price
         paid by the joint  venture  represented  the costs  incurred  by CNL BB
         Corp. to acquire and carry the property, including closing costs.

         The  amounts  due to related  parties  totaled  $21,837  and $67,815 at
         December 31, 2001 and 2000, respectively.


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


12.      Concentration of Credit Risk:
         ----------------------------

         The  following  schedule  presents  total  rental,  earned and mortgage
         interest  income  from  individual  lessees,  or  affiliated  groups of
         lessees,  each representing  more than 10% of the  Partnership's  total
         rental,   earned  and   mortgage   interest   income   (including   the
         Partnership's  share  of  total  rental  and  earned  income  from  the
         unconsolidated   joint  ventures  and  the  four   properties  held  as
         tenants-in-common  with affiliates of the general partners) for each of
         the years ended December 31:
<TABLE>
<CAPTION>

                                                   2001              2000               1999
                                               -------------     -------------      -------------
<S> <C>
                  Golden Corral Corporation       $ 763,975         $ 732,948          $ 712,877
                  Jack in the Box Inc.              349,985               N/A                N/A
                  Restaurant Management
                      Services, Inc.                    N/A           328,244            456,440
                  Waving Leaves, Inc.               283,072           289,268            295,176
</TABLE>

         In addition,  the following schedule presents total rental,  earned and
         mortgage  interest  income  from  individual  restaurant  chains,  each
         representing  more than 10% of the Partnership's  total rental,  earned
         and mortgage  interest  income  (including the  Partnership's  share of
         total rental and earned income from the  unconsolidated  joint ventures
         and the four properties held as tenants-in-common  with affiliates) for
         each of the years ended December 31:
<TABLE>
<CAPTION>

                                                2001              2000               1999
                                            -------------     --------------     -------------
<S> <C>
             Golden Corral Family
                 Steakhouse Restaurants         $763,975          $ 732,948         $ 712,877
             Hardees                             426,841            544,275           443,819
             Jack in the Box                     349,985                N/A               N/A
             Burger King                         305,348            313,857           380,586
</TABLE>

         Although  the  Partnership's   properties  are  geographically  diverse
         throughout the United States and the  Partnership's  lessees  operate a
         variety of restaurant concepts,  default by any one of these lessees or
         restaurant chains could significantly  impact the results of operations
         of the  Partnership  if the  Partnership  is not able to  re-lease  the
         properties in a timely manner.


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                  Years Ended December 31, 2001, 2000, and 1999


12.      Concentration of Credit Risk:
         ----------------------------

         The  information   denoted  by  N/A  indicates  that  for  each  period
         presented,  the tenant or restaurant  chain did not represent more than
         10% of the Partnership's total rental and earned income.

13.      Selected Quarterly Financial Data:
         ---------------------------------

         The following table presents  selected  unaudited  quarterly  financial
         data for each full quarter during the years ended December 31, 2001 and
         2000:
<TABLE>
<CAPTION>

        2001 Quarter              First              Second               Third               Fourth             Year
   -----------------------    ---------------    ----------------    -----------------    ---------------    -------------
<S> <C>
   Revenues (1)                   $  698,038          $  667,914          $   651,780         $  724,836      $ 2,742,568
   Net income                        610,040             223,679              538,628            843,223        2,215,570
   Net income per
       limited partner
       unit                            0.020               0.008                0.018              0.028            0.074

       2000 Quarter               First              Second               Third               Fourth             Year
   -----------------------    ---------------    ----------------    -----------------    ---------------    -------------

   Revenues (1)                    $ 717,803           $ 679,982            $ 701,529           $742,787      $ 2,842,101
   Net income                        537,436             631,366            1,202,585            850,128        3,221,515
   Net income per
       limited partner
       unit                            0.018               0.021                0.040              0.028            0.107
</TABLE>

         (1)      Revenues include equity in earnings of unconsolidated joint
                  ventures and minority interest in income of the consolidated
                  joint venture.


<PAGE>



Item 9.   Changes in and Disagreements with Accountants on Accounting and
          Financial Disclosure

          None


                                    PART III


Item 10.  Directors and Executive Officers of the Registrant

         The General Partners of the Registrant are James M. Seneff, Jr., Robert
A.  Bourne  and CNL  Realty  Corporation,  a Florida  corporation.  The  General
Partners  manage  and  control  the  Partnership's   affairs  and  have  general
responsibility   and  the  ultimate  authority  in  all  matters  affecting  the
Partnership's  business.  The  Partnership  has  available  to it the  services,
personnel and experience of CNL Fund Advisors,  Inc., CNL Financial Group,  Inc.
and their affiliates, all of which are affiliates of the General Partners.

         James M. Seneff, Jr., age 55. Since 1971, Mr. Seneff has been active in
the  acquisition,  development,  and  management  of real estate  projects  and,
directly or through an  affiliated  entity,  has served as a general  partner or
co-venturer in over 100 real estate  ventures.  These ventures have involved the
financing,  acquisition,   construction,  and  leasing  of  restaurants,  office
buildings,  apartment  complexes,  hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL  American  Properties  Fund,
Inc. ("APF"),  a public,  unlisted real estate investment trust, since 1994. Mr.
Seneff served as Chief  Executive  Officer of APF from 1994 through August 1999,
and has served as Co-Chief  Executive  Officer of APF since  December  2000. Mr.
Seneff served as Chairman of the Board and Chief  Executive  Officer of CNL Fund
Advisors,  Inc.,  formerly  the  Partnership's  advisor,  until it merged with a
wholly-owned  subsidiary  of APF  in  September  1999,  and in  June  2000,  was
re-elected  to those  positions  of CNL Fund  Advisors,  Inc.  Mr.  Seneff  is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group,  Inc., a diversified  real estate company,  and has served as a Director,
Chairman of the Board and Chief Executive  Officer of CNL Financial Group,  Inc.
since its formation in 1980. CNL Financial  Group,  Inc. is the parent  company,
either directly or indirectly through subsidiaries, of CNL Real Estate Services,
Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp.
Mr. Seneff also serves as a Director,  Chairman of the Board and Chief Executive
Officer of CNL  Hospitality  Properties,  Inc., a public,  unlisted  real estate
investment trust, as well as, CNL Hospitality  Corp., its advisor.  In addition,
he serves as a Director,  Chairman of the Board and Chief  Executive  Officer of
CNL Retirement Properties, Inc., a public, unlisted real estate investment trust
and its advisor,  CNL Retirement Corp. Since 1992, Mr. Seneff has also served as
a Director,  Chairman of the Board and Chief Executive Officer of Commercial Net
Lease Realty,  Inc., a public real estate investment trust that is listed on the
New York Stock Exchange.  Mr. Seneff has also served as a Director,  Chairman of
the Board and Chief Executive  Officer of CNL Securities  Corp.  since 1979; CNL
Investment  Company  since  1990;  and  CNL  Institutional  Advisors,   Inc.,  a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served  as a  Director  of First  Union  National  Bank of  Florida,  N.A.,  and
currently serves as the Chairman of the Board of CNL Bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment  Advisory Council,  which recommends
to the Florida Board of Administration  investments for various Florida employee
retirement  funds.  The Florida  Board of  Administration,  Florida's  principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.

         Robert A.  Bourne,  age 54. Mr.  Bourne has  participated  as a general
partner  or  co-venturer  in over  100  real  estate  ventures  involved  in the
financing,  acquisition,   construction,  and  leasing  of  restaurants,  office
buildings,  apartment  complexes,  hotels,  and other real estate. Mr. Bourne is
Director of the Board of Directors of APF. Mr. Bourne served as President of APF
from 1994 through  February 1999. He also served as Treasurer from February 1999
through  August 1999 and from May 1994 through  December 1994. He also served in
various  executive  positions with CNL Fund  Advisors,  Inc. prior to its merger
with a  wholly-owned  subsidiary of APF  including,  President from 1994 through
September 1997, and Director from 1994 through August 1999. Mr. Bourne serves as
President and Treasurer of CNL Financial Group, Inc.; Director, Vice Chairman of
the Board,  President  and  Treasurer  of CNL  Hospitality  Properties,  Inc., a
public,  unlisted  real estate  investment  trust;  as well as,  Director,  Vice
Chairman of the Board,  President and Treasurer of CNL  Hospitality  Corp.,  its
advisor. In addition, Mr. Bourne serves as Director, Vice Chairman of the Board,
President and Treasurer of CNL Retirement Properties,  Inc., a public,  unlisted
real  estate  investment  trust;  as well as, a Director,  Vice  Chairman of the
Board,  President and Treasurer of its advisor,  CNL Retirement Corp. Mr. Bourne
also serves as a Director of CNL Bank.  He has served as a Director  since 1992,
Vice Chairman of the Board since  February  1996,  Secretary and Treasurer  from
February 1996 through 1997, and President from July 1992 through  February 1996,
of Commercial  Net Lease  Realty,  Inc., a public real estate  investment  trust
listed on the New York Stock  Exchange.  Mr.  Bourne  also  serves as  Director,
President  and Treasurer for various  affiliates  of CNL Financial  Group,  Inc.
including,  CNL Investment  Company,  CNL Securities Corp. and CNL Institutional
Advisors,  Inc., a registered  investment  advisor for pension plans. Mr. Bourne
began his career as a certified public accountant employed by Coopers & Lybrand,
Certified  Public  Accountants,  from 1971 through  1978,  where he attained the
position  of Tax  Manager in 1975.  Mr.  Bourne  graduated  from  Florida  State
University in 1970 where he received a B.A. in Accounting, with honors.

         Curtis B.  McWilliams,  age 46. Mr.  McWilliams  has served as Co-Chief
Executive  Officer of APF since  December  2000 and  previously  served as Chief
Executive  Officer from  September  1999  through  December  2000.  Prior to the
acquisition of CNL Fund Advisors,  Inc., Mr.  McWilliams  served as President of
APF from  February  1999 until  September  1999.  From February 1998 to February
1999, he served as Executive  Vice President of APF. Mr.  McWilliams  joined CNL
Financial  Group,  Inc. in April 1997 and served as an Executive  Vice President
from October 1997 until September 1999. In addition,  Mr.  McWilliams  served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc. from April
1997 until the acquisition of such entities by wholly-owned  subsidiaries of APF
in September  1999.  From September 1983 through March 1997, Mr.  McWilliams was
employed by Merrill  Lynch & Co. The  majority of his career at Merrill  Lynch &
Co.  was in the  Investment  Banking  division  where he  served  as a  Managing
Director.  Mr.  McWilliams  received  a  B.S.E.  in  Chemical  Engineering  from
Princeton University in 1977 and a Master of Business Administration degree with
a concentration in finance from the University of Chicago in 1983.

         Steven  D.  Shackelford,  age  38.  Mr.  Shackelford  was  promoted  to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief  Financial  Officer  since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors,  Inc. from September  1996 to September  1999.  From March
1995 to July 1996, Mr.  Shackelford  was a senior manager in the national office
of Price  Waterhouse LLP where he was responsible  for advising  foreign clients
seeking to raise capital and a public listing in the United States.  From August
1992 to March  1995,  he was a  manager  in the  Paris,  France  office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and  senior  from  1986 to 1992 in the  Orlando,  Florida  office of Price
Waterhouse.  Mr.  Shackelford  received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business  Administration  degree from Florida State
University and is a certified public accountant.


Item 11.  Executive Compensation

         Other than as  described in Item 13, the  Partnership  has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates.  There are no compensatory plans or arrangements  regarding
termination of employment or change of control.




<PAGE>


Item 12.  Security Ownership of Certain Beneficial Owners and Management

         As of March 15,  2002,  no person was known to the  Registrant  to be a
beneficial owner of more than five percent of the Units.

         The following  table sets forth,  as of March 15, 2002,  the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>

                    Title of Class                           Name of Partner                 Percent of Class
                    --------------                           ---------------                 ----------------
<S> <C>
           General Partnership Interests                James M. Seneff, Jr.                           45%
                                                        Robert A. Bourne                               45%
                                                        CNL Realty Corporation                         10%
                                                                                                   --------
                                                                                                      100%
                                                                                                   ========
</TABLE>

         Neither the General  Partners,  nor any of their  affiliates,  owns any
interest in the Registrant, except as noted above.




<PAGE>



Item 13.  Certain Relationships and Related Transactions

         The  table  below   summarizes  the  types,   recipients,   methods  of
computation and amounts of compensation,  fees and distributions paid or payable
by the  Partnership  to the General  Partners and their  affiliates for the year
ended  December 31, 2001,  exclusive of any  distributions  to which the General
Partners or their  affiliates  may be entitled by reason of their  purchase  and
ownership of Units.
<TABLE>
<CAPTION>

                                                                                                 Amount Incurred
       Type of Compensation                                                                       For the Year
            and Recipient                            Method of Computation                   Ended December 31, 2001
     -------------------------                       ---------------------                   -----------------------
<S> <C>
Reimbursement     to    affiliates    for     Operating  expenses  are  reimbursed     Accounting    and     administrative
operating expenses                            at the  lower  of cost or 90% of the     services: $170,123
                                              prevailing rate at which
                                              comparable services could have
                                              been obtained in the same
                                              geographic area. Affiliates of the
                                              General Partners from time to time
                                              incur certain operating expenses
                                              on behalf of the Partnership for
                                              which the Partnership reimburses
                                              the affiliates without interest.

Annual,  subordinated  manage-ment fee to     One  percent  of the  sum  of  gross     $ - 0 -
affiliates                                    operating  revenues from  Properties
                                              wholly owned by the Partnership
                                              plus the Partnership's allocable
                                              share of gross revenues of joint
                                              ventures in which the Partnership
                                              is a co-venturer and the
                                              Properties owned with affiliates
                                              as tenants-in-common, subordinated
                                              to certain minimum returns to the
                                              Limited Partners. The management
                                              fee will not exceed competitive
                                              fees for comparable services. Due
                                              to the fact that these fees are
                                              non-cumulative, if the Limited
                                              Partners have not received their
                                              10% Preferred Return in any
                                              particular year, no management
                                              fees will be due or payable for
                                              such year.




<PAGE>



                                                                                                 Amount Incurred
       Type of Compensation                                                                       For the Year
            and Recipient                            Method of Computation                   Ended December 31, 2001
     -------------------------                       ---------------------                   -----------------------

Deferred,    subordinated   real   estate     A   deferred,    subordinated   real     $ - 0 -
disposition fee payable to affiliates         estate   disposition   fee,  payable
                                              upon sale of one or more
                                              Properties, in an amount equal to
                                              the lesser of (i) one-half of a
                                              competitive real estate
                                              commission, or (ii) three percent
                                              of the sales price of such
                                              Property or Properties. Payment of
                                              such fee shall be made only if
                                              affiliates of the General Partners
                                              provide a substantial amount of
                                              services in connection with the
                                              sale of a Property or Properties
                                              and shall be subordinated to
                                              certain minimum returns to the
                                              Limited Partners. However, if the
                                              net sales proceeds are reinvested
                                              in a replacement Property, no such
                                              real estate disposition fee will
                                              be incurred until such replacement
                                              Property is sold and the net sales
                                              proceeds are distributed.

General        Partners'        deferred,     A   deferred,   subordinated   share     $ - 0 -
sub-ordinated  share of  Partnership  net     equal to one percent of  Partnership
cash flow                                     distributions   of  net  cash  flow,
                                              subordinated   to  certain   minimum
                                              returns to the Limited Partners.

General        Partners'        deferred,     A   deferred,   subordinated   share     $ - 0 -
sub-ordinated  share of  Partnership  net     equal    to    five    percent    of
sales  proceeds  from a sale or sales not     Partnership  distributions  of  such
in liquidation of the Partnership             net sales proceeds,  subordinated to
                                              certain   minimum   returns  to  the
                                              Limited Partners.



<PAGE>



                                                                                                 Amount Incurred
       Type of Compensation                                                                       For the Year
            and Recipient                            Method of Computation                   Ended December 31, 2001
     -------------------------                       ---------------------                   -----------------------

General  Partners'  share of  Partnership     Distributions  of net sales proceeds     $ - 0 -
net sales  proceeds  from a sale or sales     from   a   sale    or    sales    of
in liquidation of the Partnership             substantially     all     of     the
                                              Partnership's assets will be
                                              distributed in the following order
                                              or priority: (i) first, to pay all
                                              debts and liabilities of the
                                              Partnership and to establish
                                              reserves; (ii) second, to Partners
                                              with positive capital account
                                              balances, determined after the
                                              allocation of net income, net
                                              loss, gain and loss, in proportion
                                              to such balances, up to amounts
                                              sufficient to reduce such balances
                                              to zero; and (iii) thereafter, 95%
                                              to the Limited Partners and 5% to
                                              the General Partners.


</TABLE>

The Partnership  entered into a joint venture  arrangement  with CNL Income Fund
XVII,  Ltd.,  an  affiliate of the general  partners to acquire a Golden  Corral
property from CNL BB Corp., an affiliate of the general partners, for a purchase
price of $1,740,374.  CNL BB Corp. had purchased and  temporarily  held title to
this  property in order to  facilitate  the  acquisition  of the property by the
Partnership.  The purchase  price paid by the  Partnership  represents the costs
incurred by CNL BB Corp.  to acquire and carry the property,  including  closing
costs.

The Partnership acquired a Jack in the Box property from CNL Funding 2001-A, LP,
an affiliate of the general  partners,  for a purchase price of $1,495,700.  CNL
Funding 2001-A,  LP had purchased and temporarily  held title to the property in
order to facilitate  the  acquisition  of the property by the  Partnership.  The
purchase  price paid by the  Partnership  represents  the costs  incurred by CNL
Funding 2001-A, LP to acquire and carry the property, including closing costs.

In addition, the Partnership acquired an additional 19.72% interest in TGIF
Pittsburgh Joint Venture from CNL Income Fund XVIII, Ltd., an affiliate of the
general partners, for an aggregate purchase price of approximately $500,000.



<PAGE>


                                     PART IV


Item 14.  Exhibits, Financial Statement Schedules and Reports on Form 8-K

(a)       The following documents are filed as part of this report.

          1.  Financial Statements

                  Report of Independent Certified Public Accountants

                  Balance Sheets at December 31, 2001 and 2000

                  Statements of Income for the years ended December 31, 2001,
                  2000, and 1999

                  Statements of Partners' Capital for the years ended December
                  31, 2001, 2000, and 1999

                  Statements of Cash Flows for the years ended December 31,2001,
                  2000, and 1999

                  Notes to Financial Statements

          2.  Financial Statement Schedules

                  Schedule II - Valuation and Qualifying Accounts for the years
                  ended December 31, 2001, 2000 and 1999

                  Schedule III - Real Estate and Accumulated Depreciation at
                  December 31, 2001

                  Notes to Schedule III - Real Estate and Accumulated
                  Depreciation at December 31, 2001

                  Schedule IV - Loans on Real Estate at December 31, 2001

                  All other Schedules are omitted as the required information is
                  inapplicable or is presented in the financial statements or
                  notes thereto.

          3.  Exhibits

                 3.1       Affidavit and  Certificate of Limited  Partnership of
                           CNL Income Fund VII, Ltd. (Included as Exhibit 4.1 to
                           Registration  Statement No. 33-31482 on Form S-11 and
                           incorporated herein by reference.)

                 4.1       Affidavit and  Certificate of Limited  Partnership of
                           CNL Income Fund VII, Ltd. (Included as Exhibit 4.1 to
                           Registration  Statement No. 33-31482 on Form S-11 and
                           incorporated herein by reference.)

                 4.2       Amended and Restated Agreement of Limited Partnership
                           of CNL Income Fund VII, Ltd. (Included as Exhibit 4.2
                           to Form 10-K filed with the  Securities  and Exchange
                           Commission on April 1, 1996, and incorporated  herein
                           by reference.)

                 10.1      Management  Agreement  between  CNL Income  Fund VII,
                           Ltd. and CNL Investment  Company (Included as Exhibit
                           10.1 to Form  10-K  filed  with  the  Securities  and
                           Exchange   Commission   on   April   1,   1996,   and
                           incorporated herein by reference.)

                 10.2      Assignment   of   Management   Agreement   from   CNL
                           Investment Company to CNL Income Fund Advisors,  Inc.
                           (Included as Exhibit 10.2 to Form 10-K filed with the
                           Securities and Exchange Commission on March 30, 1995,
                           and incorporated herein by reference.)

                 10.3      Assignment  of Management  Agreement  from CNL Income
                           Fund  Advisors,  Inc.  to  CNL  Fund  Advisors,  Inc.
                           (Included as Exhibit 10.3 to Form 10-K filed with the
                           Securities and Exchange  Commission on April 1, 1996,
                           and incorporated herein by reference.)

                 10.4      Assignment  of  Management  Agreement  from  CNL Fund
                           Advisors,  Inc. to CNL APF Partners, LP. (Included as
                           Exhibit  10.4 to Form 10-Q filed with the  Securities
                           and  Exchange  Commission  on August  10,  2001,  and
                           incorporated herein by reference.)

(b)      The Registrant  filed no reports on Form 8-K during the period from
         October 1, 2001 through December 31, 2001.

(c)      Not applicable.

(d)      Other Financial Information

         The  Partnership is required to file audited  financial  information of
         one of its  tenants  (Golden  Corral  Corporation)  as a result of this
         tenant leasing more than 20% of the Partnership's  total assets for the
         year  ended  December  31,  2001.   Golden  Corral   Corporation  is  a
         privately-held  company and its financial  information is not available
         to the Partnership to include in this filing. The Partnership will file
         this financial  information  under cover of a Form 10-K/A as soon as it
         is available.



<PAGE>




                                   SIGNATURES


         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto duly  authorized,  on the 25th day of
March, 2002.

                                  CNL INCOME FUND VII, LTD.

                                  By:      CNL REALTY CORPORATION
                                           General Partner

                                           /s/Robert A. Bourne
                                           -----------------------------
                                           ROBERT A. BOURNE, President


                                  By:      ROBERT A. BOURNE
                                           General Partner

                                           /s/Robert A. Bourne
                                           -----------------------------
                                           ROBERT A. BOURNE

                                  By:      JAMES M. SENEFF, JR.
                                           General Partner

                                           /s/James M. Seneff, Jr.
                                           ----------------------
                                           JAMES M. SENEFF, JR.


<PAGE>


         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

              Signature                                    Title                                   Date
<S> <C>
/s/ Robert  A.  Bourne                      President,   Treasurer  and  Director              March 25, 2002
----------------------------------------   (Principal        Financial       and
Robert A. Bourne                            Accounting  Officer)

/s/      James M. Seneff, Jr.               Chief Executive  Officer and Director              March 25, 2002
----------------------------------------   (Principal Executive  Officer)
James M. Seneff, Jr.
</TABLE>


<PAGE>
                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                  Years Ended December 31, 2001, 2000, and 1999
<TABLE>
<CAPTION>


                                                     Additions                           Deductions
                                          ---------------------------------    -------------------------------
                                                                                                          Collected
                                                                                                          or Deter-
                                   Balance at       Charged to       Charged to           Deemed          mined to       Balance
                                    Beginning       Costs and           Other           Uncollec-          be Col-       at End
  Year          Description          of Year         Expenses         Accounts            tible           lectible       of Year
----------    -----------------   --------------  ---------------  ----------------    -------------     ------------  ------------
<S> <C>
  1999        Allowance for
                  doubtful
                  accounts (a)        $  38,698          $    --           $    -- (b)    $   6,455 (c)     $  5,719      $ 26,524
                                  ==============  ===============  ================    =============     ============  ============
  2000        Allowance for
                  doubtful
                  accounts (a)        $  26,524          $    --         $     504 (b)       $   -- (c)     $ 16,679      $ 10,349
                                  ==============  ===============  ================    =============     ============  ============
  2001        Allowance for
                  doubtful
                  accounts (a)        $  10,349          $    --           $    -- (b)    $   9,845 (c)      $   504        $   --
                                  ==============  ===============  ================    =============     ============  ============
</TABLE>


     (a)      Deducted from receivables and accrued rental income on the
              balance sheet.

     (b)      Reduction of rental, earned and other income.

     (c)      Amounts written off as uncollectible.


<PAGE>
                            CNL INCOME FUND VII, LTD.
                        (A Florida Limited Partnership)

             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                             December 31, 2001


                                                             Costs Capitalized
                                                               Subsequent To
                                        Initial Cost           Acquisition
                                  ---------------------- -------------------
                      Encum-                 Buildings anImprove-   Carrying
                      brances       Land      Improvements ments    Costs
                      --------    ---------- ---------------------- ------
Properties the Partnership
  has Invested in Under
  Operating Leases:

    Boston Market Restaurant:
     Marietta, Georgia   -         $534,421    $507,133          -      -

    Burger King Restaurants:
     Jefferson City, Tenn-ssee      216,633     546,967          -      -
     Sierra Vista, Arizon-          421,170           -          -      -

    Checkers Drive-In Restaurant:
     Winter Springs, Flor-da        397,536           -          -      -

    Golden Corral Family
     Steakhouse Restaurants:
         Odessa, Texas   -          502,364     815,831          -      -
         Midland, Texas  -          481,748     857,185          -      -
         El Paso, Texas  -          745,506           -    802,132      -
         Harlingen, Texas-          503,799           -    890,878      -

    Hardee's Restaurants:
     Akron, Ohio         -          198,086           -          -      -
     Dalton, Ohio        -          180,556           -          -      -
     Minerva, Ohio       -          143,775           -          -      -
     Orrville, Ohio      -          176,169           -          -      -
     Seville, Ohio       -          245,648           -          -      -
     Clinton, Tennessee  -          295,861           -          -      -

    Jack in the Box Restaurant:
     Baton Rouge, Lousian-a         562,533     933,167          -      -
     San Antonio, Texas  -          525,720           -    381,591      -

    KFC Restaurant:
     Arcadia, Florida    -          175,020     333,759          -      -

    Rally's Restaurant:
     Toledo, Ohio        -          281,880     196,608     47,002      -

    Taco Bell Restaurant:
     Detroit, Michigan   -          168,429           -    402,674      -
                                  ---------- ----------- ---------- ------

                                  $6,756,854 $4,190,650  $2,524,277     -
                                  ========== =========== ========== ======

Properties of Joint Venture
   in Which the Partnership
   has an 18% Interest and has
   Invested in Under Operating
   Leases:

    Burger King Restaurants:
     Columbus, Ohio      -         $345,696    $651,985          -      -
     San Antonio, Texas  -          350,479     623,615          -      -
     Pontiac, Michigan   -          277,192     982,200          -      -
     Raceland, Louisiana -          174,019     986,879          -      -
     New Castle, Indiana -          264,239     662,265          -      -
     Hastings, Minnesota -          155,553     657,159          -      -
                                  ---------- ----------- ---------- ------

                                  $1,567,178 $4,564,103          -      -
                                  ========== =========== ========== ======
Property of Joint Venture in
   Which the Partnership has a
   4.79% Interest and has
   Invested in Under an
   Operating Lease:

    Jack in the Box Restaurant:
     Des Moines, Washingt-n        $322,726    $791,658          -      -
                                  ========== =========== ========== ======

Property of Joint Venture in
   Which the Partnership has
   a 79% Interest and has
   Invested in Under an
   Operating Lease:

    Jack in the Box Restaurant:
     Mansfield, Texas    -         $297,295    $482,914          -      -
                                  ========== =========== ========== ======

Property of Joint Venture in
   Which the Partnership has a
   56% Interest and had
   Invested in Under an
   Operating Lease:

    Roadhouse Grill Restaurant:
     Duluth, Georgia     -        $1,078,469          -          -      -
                                  ========== =========== ========== ======

Property of Joint Venture in
   Which the Partnership has
   a 36.88% Interest and has
   Invested in Under an
   Operating Lease:

    TGI Friday's Restaurant:
     Homestead, Pennsylva-ia      $1,036,297 $1,499,296          -      -
                                  ========== =========== ========== ======

Property in which the
   Partnership has a 43%
   Interest as Tenants-in-
   Common and has Invested
   in Under an Operating Lease:

    Bennigan's Restaurant:
     Colorado Springs, Co-orado    $947,120  $1,279,013          -      -
                                  ========== =========== ========== ======

Property in Which the
   Partnership has a 53%
   Interest as Tenants-in-
   Common and has Invested
   in Under an Operating Lease:

    Golden Corral Family
     Steakhouse Restaurants:
          Smithfield, Nor-h Carolin$264,272  1,155,018.00        -      -
                                  ========== =========== ========== ======

Property in Which the
   Partnership has a 35.64%
   Interest as Tenants-in-
   Common and has Invested
   in Under an Operating Lease:

    Chevy's Fresh Mex Restaurant:
     Miami, Florida      -         $976,357    $974,016          -      -
                                  ========== =========== ========== ======

Property of Joint Venture in
   Which the Partnership has
   a 14.00% Interest and has
   Invested in Under an
   Operating Lease:

     Golden Corral Family
       Steakhouse Restaurants:
           Lincoln, Nebra-ka       $485,390  $1,254,984          -      -
                                  ========== =========== ========== ======

Property of Joint Venture in
   Which the Partnership has
   a 68.75% Interest and has
   Invested in Under an
   Operating Lease:

     Sonny's Bar-B-Q:
         Columbus, Georgi-         $392,880  $1,194,308          -      -
                                  ========== =========== ========== ======

Property in Which the Partnership
   has a 71% Interest as Tenants-
   in-Common and has Invested
  in Under an Operating Lease:

    IHOP Restaurant:
     Montgomery, Alabama -         $584,126           -          -      -
                                  ========== =========== ========== ======

Properties the Partnership has
   Invested in Under Direct
   Financing Leases:

    Burger King Restaurant:
     Sierra Vista, Arizon-                -           -   $333,212      -

    Hardee's Restaurants:
     Akron, Ohio         -                -     540,215          -      -
     Dalton, Ohio        -                -     490,656          -      -
     Minerva, Ohio       -                -     436,663          -      -
     Orrville, Ohio      -                -     446,337          -      -
     Seville, Ohio       -                -     487,630          -      -
     Clinton, Tennessee  -                -     338,216          -      -

                                          -  $2,739,717   $333,212      -
                                  ========== =========== ========== ======

Property of Joint Venture in
   Which the Partnership has a 56%
    and has Invested in Under a Direct
   Financing Lease:

    Roadhouse Grill Restaurant:
     Duluth, Georgia     -                -           -          -  $865,185
                                  ========== =========== ========== ======

Property in Which the Partnership has
    a 71% Interest as Tenants-in-Common
    and has Invested in Under a Direct
   Financing Lease:

    IHOP Restaurant:
     Montgomery, Alabama -                -    $933,873          -      -
                                  ========== =========== ========== ======





    Net Cost Basis at Which                                     Life on Which
    Carried at Close of Period (c)                              Depreciation in
-----------------------------------             Date            Latest Income
            Buildings and           Accumulated ofCon- Date     Statement is
   Land     Improvements  Total     DepreciatiostructiAcquired  Computed
----------- ----------------------- -------------------------------------





  $534,421    $507,133  $1,041,554    $87,386  1994   10/96       (b)


   216,633     546,967     763,600    211,294  1988   01/90       (b)
   421,170          (f)    421,170          -  1990   06/90       (d)


   397,536           -     397,536         (g)   -    07/94       (g)



   502,364     815,831   1,318,195    319,776  1990   03/90       (b)
   481,748     857,185   1,338,933    335,437  1990   04/90       (b)
   745,506     802,132   1,547,638    301,733  1990   05/90       (b)
   503,799     890,878   1,394,677    337,557  1990   06/90       (b)


   198,086          (f)    198,086          -  1990   11/90       (d)
   180,556          (f)    180,556          -  1990   11/90       (d)
   143,775          (f)    143,775          -  1990   11/90       (d)
   176,169          (f)    176,169          -  1990   11/90       (d)
   245,648          (f)    245,648          -  1990   11/90       (d)
   295,861          (f)    295,861          -  1992   09/92       (d)


   562,533     933,167   1,495,700     31,106  2000   01/01       (b)
   525,720     381,591     907,311    145,389  1990   05/90       (b)


   175,020     333,759     508,779    126,889  1985   08/90       (b)


   281,880     243,610     525,490     89,257  1990   01/91       (b)


   168,429     402,674     571,103    152,538  1990   06/90       (b)
----------- ----------- ----------- ----------

$6,756,854  $6,714,927  $13,471,781 $2,138,362
=========== =========== =========== ==========








  $345,696    $651,985    $997,681   $223,045  1986   09/91       (b)
   350,479     623,615     974,094    213,339  1986   09/91       (b)
   277,192     982,200   1,259,392    336,011  1987   09/91       (b)
   174,019     986,879   1,160,898    337,612  1988   09/91       (b)
   264,239     662,265     926,504    226,561  1988   09/91       (b)
   155,553     657,159     812,712    224,815  1990   09/91       (b)
----------- ----------- ----------- ----------

$1,567,178  $4,564,103  $6,131,281  $1,561,383
=========== =========== =========== ==========






  $322,726    $791,658  $1,114,384   $243,062  1992   10/92       (b)
=========== =========== =========== ==========







  $297,295    $482,914    $780,209    $77,255  1997   02/97       (b)
=========== =========== =========== ==========







$1,078,469          (f) $1,078,469          -  1999   12/99       (d)
=========== =========== =========== ==========







$1,036,297  $1,499,296  $2,535,593    $79,265  2000   06/00       (b)
=========== =========== =========== ==========








  $947,120  $1,279,013  $2,226,133    $60,399  2000   08/00       (b)
=========== =========== =========== ==========








264,272.00  1,155,018.001,419,290.00154,953.00 1996   12/97       (b)
=========== =========== =========== ==========







  $976,357    $974,016  $1,950,373   $129,957  1995   12/97       (b)
=========== =========== =========== ==========








  $485,390  $1,254,984  $1,740,374    $31,374  2001   04/01       (b)
=========== =========== =========== ==========







  $392,880  $1,194,308  $1,587,188     $3,317  2001   12/01       (b)
=========== =========== =========== ==========







  $584,126          (f)   $584,126          -  1998   11/99       (d)
===========             ===========






         -          (f)         (f)        (d) 1990   06/90       (d)


         -          (f)         (f)        (d) 1990   11/90       (d)
         -          (f)         (f)        (d) 1990   11/90       (d)
         -          (f)         (f)        (d) 1990   11/90       (d)
         -          (f)         (f)        (d) 1990   11/90       (d)
         -          (f)         (f)        (d) 1990   11/90       (d)
         -          (f)         (f)        (d) 1992   09/92       (d)









         -          (f)         (f)        (d) 1999   12/99       (d)







        (f)         (f)         (f)        (d) 1998   11/99       (d)



                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)
        NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION

                                December 31, 2001


(a)      Transactions in real estate and accumulated  depreciation  during 2001,
         2000 and 1999, are summarized as follows:
<TABLE>
<CAPTION>

                                                                                                Accumulated
                                                                               Cost            Depreciation
          -----------------------------------------------                -----------------    ----------------
<S> <C>
          Properties the Partnership has Invested
            in Under Operating Leases:


               Balance, December 31, 1998                                    $  17,552,433       $  2,473,926
               Dispositions                                                       (965,646)          (165,272 )
               Depreciation expense                                                     --            293,799
                                                                         -----------------    ----------------

               Balance, December 31, 1999                                       16,586,787          2,602,453
               Dispositions                                                     (3,064,187)          (639,790 )
               Depreciation expense                                                     --            262,897
                                                                         -----------------    ----------------

               Balance, December 31, 2000                                       13,522,600          2,225,560
               Acquisitions                                                      1,495,700                 --
               Dispositions                                                     (1,546,519)          (333,933 )
               Depreciation expense                                                     --            246,735
                                                                         -----------------    ----------------

               Balance, December 31, 2001                                    $  13,471,781       $  2,138,362
                                                                         =================    ================

          Properties of Joint Venture in Which the Partnership has an 18%
            Interest and has Invested in Under Operating Leases:

               Balance, December 31, 1998                                    $  6,131,281          $ 1,104,972
               Depreciation expense                                                    --              152,137
                                                                          ----------------     ---------------

               Balance, December 31, 1999                                       6,131,281            1,257,109
               Depreciation expense                                                    --              152,137
                                                                          ----------------     ---------------

               Balance, December 31, 2000                                       6,131,281            1,409,246
               Depreciation expense                                                    --              152,137
                                                                          ----------------     ---------------

               Balance, December 31, 2001                                    $  6,131,281          $ 1,561,383
                                                                          ================     ===============



<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

  NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED


                                December 31, 2001


                                                                                               Accumulated
                                                                              Cost             Depreciation
                                                                         ----------------     ---------------

         Property of Joint Venture in Which the Partnership has a 4.79%
           Interest and has Invested in Under an Operating Lease:

              Balance, December 31, 1998                                    $  1,114,384           $  163,895
              Depreciation expense                                                    --               26,389
                                                                         ----------------     ---------------

              Balance, December 31, 1999                                       1,114,384              190,284
              Depreciation expense                                                    --               26,389
                                                                         ----------------     ---------------

              Balance, December 31, 2000                                       1,114,384              216,673
              Depreciation expense                                                    --               26,389
                                                                         ----------------     ---------------

              Balance, December 31, 2001                                    $  1,114,384           $  243,062
                                                                         ================     ===============

         Property of Joint Venture in Which the Partnership has a 79%
           Interest and has Invested in Under an Operating Lease:

              Balance, December 31, 1998                                    $    780,209         $    28,964
              Depreciation expense                                                    --              16,097
                                                                        -----------------    ----------------

              Balance, December 31, 1999                                         780,209              45,061
              Depreciation expense                                                    --              16,097
                                                                        -----------------    ----------------

              Balance, December 31, 2000                                         780,209              61,158
              Depreciation expense                                                    --              16,097
                                                                        -----------------    ----------------

              Balance, December 31, 2001                                    $    780,209         $    77,255
                                                                        =================    ================


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

  NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED


                                December 31, 2001

                                                                                            Accumulated
                                                                           Cost             Depreciation
                                                                     ------------------   -----------------

       Property of Joint Venture in Which the Partnership has a
         36.88% Interest and has Invested in Under an Operating
         Lease:

            Balance, December 31, 1999                                       $      --            $     --
            Acquisition                                                      2,535,593                  --
            Depreciation expense                                                    --              29,288
                                                                     ------------------   -----------------

            Balance, December 31, 2000                                       2,535,593              29,288
            Depreciation expense                                                    --              49,977
                                                                     ------------------   -----------------

            Balance, December 31, 2001                                   $   2,535,593         $    79,265
                                                                     ==================   =================

       Property of Joint Venture in Which the Partnership has a
          53% Interest as Tenants-in-Common and has Invested in
          Under an Operating Lease:

            Balance, December 31, 1998                                    $  1,419,290          $   39,450
            Depreciation expense                                                    --              38,501
                                                                       ----------------    ----------------

            Balance, December 31, 1999                                       1,419,290              77,951
            Depreciation expense                                                    --              38,501
                                                                       ----------------    ----------------

            Balance, December 31, 2000                                       1,419,290             116,452
            Depreciation expense                                                    --              38,501
                                                                       ----------------    ----------------

            Balance, December 31, 2001                                    $  1,419,290          $  154,953
                                                                       ================    ================



<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

  NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

                                December 31, 2001

                                                                                             Accumulated
                                                                            Cost             Depreciation
                                                                      ------------------   -----------------
        Property in Which the Partnership has a 35.64% Interest as
          Tenants-in-Common and has Invested in Under an Operating
          Lease:

             Balance December 31, 1998                                     $  1,950,373          $   32,556
             Depreciation expense                                                    --              32,467
                                                                      ------------------   -----------------

             Balance December 31, 1999                                        1,950,373              65,023
             Depreciation expense                                                    --              32,467
                                                                      ------------------   -----------------

             Balance December 31, 2000                                        1,950,373              97,490
             Depreciation expense                                                    --              32,467
                                                                      ------------------   -----------------

             Balance, December 31, 2001                                    $  1,950,373          $  129,957
                                                                      ==================   =================

        Property of Joint Venture in Which the Partnership has a 56%
          Interest and has Invested in Under an Operating Lease:

             Balance, December 31, 1998                                        $     --             $    --
             Acquisition                                                      1,083,153                  --
             Depreciation expense                                                    --                  --
                                                                      ------------------   -----------------

             Balance, December 31, 1999                                       1,083,153                  --
             Acquisition                                                        860,501                  --
             Depreciation expense                                                    --               7,210
                                                                      ------------------   -----------------

             Balance, December 31, 2000                                       1,943,654               7,210
             Reclassified to capital lease                                     (865,185 )            (7,210 )
             Depreciation expense (d)                                                --                  --
                                                                      ------------------   -----------------

             Balance, December 31, 2001                                   $   1,078,469            $     --
                                                                      ==================   =================



<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

  NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

                                December 31, 2001


                                                                                             Accumulated
                                                                            Cost             Depreciation
                                                                      ------------------   -----------------
        Property of Joint Venture in Which the Partnership has a
          14% Interest and has Invested in Under an Operating Lease:

             Balance, December 31, 2000                                       $      --            $     --
             Acquisition                                                      1,740,374                  --
             Depreciation expense                                                    --              31,374
                                                                      ------------------   -----------------

             Balance, December 31, 2001                                   $   1,740,374         $    31,374
                                                                      ==================   =================

        Property of Joint Venture in Which the Partnership has
          a 68.75% Interest and has Invested in Under an Operating
          Lease:

             Balance December 31, 2000                                        $      --            $     --
             Acquisition                                                      1,587,188                  --
             Depreciation expense                                                    --               3,317
                                                                      ------------------   -----------------

             Balance, December 31, 2001                                   $   1,587,188         $     3,317
                                                                      ==================   =================

        Property in Which the Partnership has a 71% Interest as
          Tenants-in Common and has Invested in Under an Operating
          Lease:

             Balance, December 31, 1998                                       $      --            $     --
             Acquisition                                                        584,126                  --
             Depreciation expense (d)                                                --                  --
                                                                      ------------------   -----------------

             Balance December 31, 1999                                          584,126                  --
             Depreciation expense (d)                                                --                  --
                                                                      ------------------   -----------------

             Balance December 31, 2000                                          584,126                  --
             Depreciation expense (d)                                                --                  --
                                                                      ------------------   -----------------

             Balance, December 31, 2001                                    $    584,126            $     --
                                                                      ==================   =================


<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

  NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED

                                December 31, 2001

                                                                                             Accumulated
                                                                            Cost             Depreciation
                                                                      ------------------   -----------------
        Property in Which the Partnership has a 43% Interest as
          Tenants-in-Common and has Invested in Under an Operating
          Lease:

             Balance December 31, 1999                                        $      --            $     --
             Acquisition                                                      2,226,133                  --
             Depreciation expense                                                    --              17,765
                                                                      ------------------   -----------------

             Balance December 31, 2000                                        2,226,133              17,765
             Depreciation expense                                                    --              42,634
                                                                      ------------------   -----------------

             Balance, December 31, 2001                                   $   2,226,133         $    60,399
                                                                      ==================   =================

</TABLE>


(b)      Depreciation  expense is computed for buildings and improvements  based
         upon estimated lives of 30 years.

(c)      As of December 31, 2001, the aggregate cost of the Properties  owned by
         the  Partnership   and  its   consolidated   joint  venture,   and  the
         unconsolidated   joint  ventures  (including  the  Properties  held  as
         tenants-in-common)  for federal income tax purposes was $16,104,595 and
         $22,942,477,  respectively.  All of the leases are treated as operating
         leases for federal income tax purposes.

(d)      The portion of the lease  relating to the building has been recorded as
         a direct financing lease. The cost of the building has been included in
         the net investment in direct financing leases; therefore,  depreciation
         is not applicable.

(e)      The  lease  for the land and  building  has been  recorded  as a direct
         financing lease. The cost of the land and building has been included in
         net investment in direct financing leases;  therefore,  depreciation is
         not applicable.

(f)      Certain components of the lease relating to land and building have been
         recorded as a direct  financing lease.  Accordingly,  costs relating to
         these components of this lease are not shown.

(g)      The  building  portion  of  this  Property  is  owned  by  the  tenant;
         therefore, depreciation is not applicable.





<PAGE>


                            CNL INCOME FUND VII, LTD.
                         (A Florida Limited Partnership)

                       SCHEDULE IV - LOANS ON REAL ESTATE

                                December 31, 2001

<TABLE>
<CAPTION>

                                                                                                                      Principal
                                                                                                                      Amount of
                                                                                                                        Loans
                                                                                                                     Subject to
                                      Final           Periodic                      Face           Carrying          Delinquent
                      Interest       Maturity         Payment       Prior         Amount of        Amount of          Principal
   Description          Rate           Date            Terms        Liens         Mortgages      Mortgages(2)        or Interest
------------------    ---------  -----------------   -----------   ----------    -------------   --------------     -------------
<S> <C>
Church's-
Daytona Beach,
   Florida             12.34%     November 2004         (1)            $ --        $ 103,581        $  103,581            $    --
                                                                   ----------    -------------   --------------     -------------

    Total                                                              $ --        $ 103,581        $  103,581            $    --
                                                                   ==========    =============   ==============     =============
</TABLE>


(1)      Monthly  payments of interest only at an annual rate of 12.34%,  with a
         balloon payment at maturity of $103,581.

(2)      The tax carrying value of the note is approximately $103,581.

(3)      The changes in the carrying amounts are summarized as follows:
<TABLE>
<CAPTION>

                                                               2001               2000                 1999
                                                        ------------------   ---------------     ---------------
<S> <C>

             Balance at beginning of period                   $   994,593        $  994,408         $ 1,241,056

             New promissory note                                  103,581                --                  --

             Interest earned                                        9,243           113,379             127,054

             Collection of principal and interest              (1,125,696  )       (114,341  )         (374,837  )

             Recognition  of deferred  gain on sale
             of land and building                                 122,996             1,147               1,135

                                                         ------------------   ---------------     ---------------

             Balance at end of period                         $   104,717        $  994,593          $  994,408
                                                         ==================   ===============     ===============

</TABLE>